On February 15th,
John Oliver’s HBO show “Last Week Tonight” featured a segment that tackled the tobacco
industry.
In the segment, Oliver showed disgust that tobacco companies have become more
profitable over time despite decreasing rates of tobacco consumption.
There is an easy
explanation for this. Tobacco products are heavily regulated and taxed in most
states throughout the US. The costs of these regulations and taxes push
smaller tobacco companies who cannot afford them out of the market. This leaves
larger market shares and profit shares for the bigger companies who can afford
to cover the costs of these regulations. So while John Oliver is supporting
heavy regulations because he thinks they are reducing the profits of these big
tobacco companies, in reality, these companies are benefitting from them.
Oliver pointed
to the Australian tobacco market and praised its government for its plain
packaging mandate, which eliminates branding and requires all similar tobacco
products to look the same. Oliver suggested that the United States adopt a
similar policy because tobacco companies are too profitable and he claims such
a policy would help lower tobacco consumption. Not only is a plain packaging
mandate a massive violation of intellectual property rights because it strips
companies of their trademarks and branding, but there is also no evidence that
the Australian plain packaging regulations have caused lower levels of tobacco consumption.
Sinclair
Davidson and Ashton de Silva, authors of “The Plain Truth about Plain
Packaging: An Econometric Analysis of the Australian 2011 Tobacco Plain
Packaging Act”
found that the plain packaging policy introduced in Australia “has not reduced
household expenditure[s] of tobacco once we control for price effects.” The last part
is important because over the same span that plain packaging was introduced,
Australia imposed a 12.5 percent excise tax increase. This tax
increase likely is the driver of any decreases in tobacco consumption, not
plain packaging regulations.
Ernst &
Young LLP also released a paper entitled “Historical Trends in
Australian Tobacco Consumption: A Case Study” which found “no evidence that
plain packaging in Australia has reduced total consumption to date.” But plain
packaging has had an effect on the tobacco market. Since Australia’s mandate
went into effect, consumption of black market tobacco products has increased by
roughly 55 percent. Because the
supply of black market tobacco products has increased, the access to children
has also increased, resulting in a 30 percent hike in daily smoking rates of
12-17 year olds, according to the International Property Rights
Index. I
doubt these are the results John Oliver is trying to promote.
Granted, these
are results from Australia, but the results should not go unnoticed. We already
know that tobacco tax rates are so high in some states in the US that
individuals are selling “loose cigarettes” despite the aggressive enforcement
from police. Removing trademarks and branding, which tobacco users place a high
value on, would violate the intellectual property rights of tobacco companies
and certainly would push tobacco consumption into a black market.