Market Fail

Market Research

        The market failure that I have chosen to carry out this investigation is that of imperfect competition. Oligopolies, monopolies and monopolistic competition are markets of imperfect competition. Because of this lack of competition, consumers are seriously harmed, as companies engage in abusive practices in the setting of prices and sales conditions.

        Within the market failure of imperfect competition, I have selected the tobacco market, as it consists of a monopoly. Monopolies have as their characteristics, being the only company producing or selling a product or service, they have no competition or substitute products or services, the number of buyers is large and the barriers to market entry are very rigid, and the monopolist also has the power to set the price.

        The tobacco monopoly is run by the State or the Government which only gives exclusivity so that tobacconists are the only ones who can sell tobacco, with the exception of licenses granted to vending machines in bars, newsagents and petrol stations. It is true that since tobacco depends on the State, the total price is imposed by the Government, but tobacco companies can indirectly decide to change the price of their products to achieve a higher profit margin. As (Tabaco, s.f.) says “When the link between cancer and tobacco was discovered in the United States, the state imposed a penalty on tobacco companies for concealing information that they apparently already knew and did not report”.

        As (Monzon, 2019) says “Large tobacco manufacturers have been suffering for years, at least in Western markets, from a combination of increasing regulatory pressure - which has limited, among other things, their advertising options - a near-general increase in taxes, a rise in social awareness of the health damage caused by smoking, and a series of legal disputes that have sown uncertainty about the future of an industry that is still capable of distributing more than 5 billion cigarettes a year worldwide.”

        The state brings negative consequences for this monopoly, in spite of being able to raise prices since they have no competition, they also suffer in other aspects. For example with the anti-smoking law that came into force on January 1, 2006, which banned smoking in both private and public places that were previously allowed, such as bars, discos, hospitals, etc.

        Another negative consequence was the law banning tobacco advertising, for example in the motoring world, on television, and also warning of the consequences of smoking with images of diseases caused by smoking on tobacco packages.

        Tobacconists are forced to sell only smoking items, stamped objects or stationery and books, and are limited in their ability to sell any other type of goods, thus depriving them of additional profits.

        On the one hand, tobacco growers should start making less carcinogenic or healthier cigars, since people already have this addiction to tobacco and simply by ingesting smoke they will continue to buy the new, healthier cigars. The state would then have to stop campaigning against tobacco because it would not be as harmful to health.

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