Commission and Staff Reports

Competition and the Financial Impact of the Proposed Tobacco Industry Settlement

The report analyzes the potential impact of the proposed tobacco industry settlement on cigarette prices, industry profits, and government revenues. The main conclusions of the report are that (1) the antitrust exemption may reduce competition in the industry and allow the industry to profit from the settlement by raising prices more than enough to cover the annual payments requires; (2) since the annual payments are essentially equivalent to an excise tax, even if the settlement does not have anti-competitive effects, we can expect that cigarette prices will rise by enough to generate revenues to make the annual payments; and (3) the government revenues will increase due to the settlement.