The origin of tobacco is quite old, and it became an industry when European discovered it. But the future of this particular industry is uncertain. Tobacco is not really an innocent product, since it has been proved to be addicting and to favour diseases such as cancer. Consequently, tobacco firms have been subject to many critics concerning their harmful products and tendency to hide information concerning danger of tobacco for the last 30 years. Tobacco is still a profitable industry, thanks its lack of atomicity, but legal risk is constantly growing. Tobacco use was common in most parts of native America. Some evidences reveal its consumption is at least dating from 900 A.D. It was widely distributed throughout the continent. Tobacco was smoked, sometimes with pipes. The first Europeans to meet Native American, sailors of Christopher Columbus, were astonished by this practice, and a little disgusted. But no sooner have they tried it than they like the feeling, and they introduce tobacco in Spanish ports.
[...] In some way, it can be said that for smokers, tobacco is a luxury that becomes a necessity. The goods in tobacco industry are homogenous to the degree that they fulfill the same general purpose. However the products are differentiated by their reputation, and their taste. The consumer's perception of the product is an important issue for tobacco manufacturers, and in consequence advertising is extensively used. But the last evolution in law made the frame of advertising more restrictive in western countries especially. [...]
[...] The famous four” of the American tobacco industry appear clearly. We note also that concentration is still growing between 1996 and 2001, as indicated by both Four largest index and HHI Cost Structure of the industry The tobacco industry is a very particular sector since its cost structure is by large dominated by taxes and fees. These account for 72% of all costs. Taxes on tobacco products are growing, because more and more countries became conscious of the negative externalities of the use of tobacco. [...]
[...] The tobacco industry had a successful diversification, since the 2nd largest food company, Kraft Foods is owned by Philip Morris for example. Because of this, nearly everyone is consumer of products from tobacco industry. References Books and papers Abedian Iraj (2000), Demand Elasticities, Taxation of Tobacco Products and Economic Consequences: A Developing Economy Perspective, International Conference on Sustainable Structure for Better Health, Budapest, Hungary, Cabral Luís M.B. (2000), Introduction to industrial organization, MIT Press Carlton Dennis W. and Perloff Jeffrey M. [...]
[...] Tobacco industry had to sign a 206 billions dollars agreement over 25 years, which represent a present discounted value of about 105 billion dollars Dynamic process and structure of the industry 6.1 The Entry and Exit Process There is a very low entry and exit process in this industry. Few firms, if any, have exited in the past few years and few have entered. We can wonder why there is so few movement among the players of the industries, especially if we point out that cigarette prices have historically been well above cost and that even in the 1980s, the price augmentation of tobacco products (without taxes) was higher in the U.S. [...]
[...] There was little differentiation in tobacco products till the mid-1800s, when Lorillard was one of the first to affix tin tags on the items he produced. Cigarettes supplanted cigars and others tobacco during the century, and introductions of the first machines to produce cigarettes around 1870 open the path to constitution of big firms. From a still atomized market was growing a consolidation trend. The American Tobacco Company (ATC) was at the hedge of this movement, partly by being the first in 1881 to buy machines that replaced hand-rolling as the primary means of making cigarettes. [...]
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