Price Cap Regulation

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The extent of market failure and the resulting excess industry profits, and worries about the use of price as a marketing tool, have lead to a proposal for price cap regulation for the sale of tobacco and cigarettes. Price cap regulation sets a cap on the price that can be charged for services or products. After the rising costs of inputs (inflation) and the prices charged by competitors are considered, price cap regulation is introduced to protect the consumers while ensuring that the business can remain profitable. This form of economic regulation is commonly used in the United Kingdom to regulate utility providers.

TCRG research in 2010 summarised the potential benefits of such a proposal:1

“Under such a system, well established in the utilities sector, industry profits would be capped and the excess profits transferred to the government as additional excise revenue while maintaining high tobacco prices for consumers.

This would produce significant additional government revenue and, by reducing industry profit, remove the TTCs’ incentive and ability to oppose tobacco control policies and offset losses in emerging markets through the excess profits generated elsewhere. It could thereby curtail the ultimate size of the global tobacco epidemic.(…)

Price cap regulation would also remove the industry’s ability to use price as a marketing tool, provide a means of controlling cigarette smuggling (because the industry could only profit from legal sales) and prevent underhand marketing by limiting or eliminating the marketing budget.”1

Research published in 2021 explained how a maximum price cap for cigarettes would help cut smoking rates in the UK, while only allowing a minimal profit for tobacco companies.  Creating a standardise cost for cigarettes would help make future tax rises “much more effective”.23

TobaccoTactics Resources

For a comprehensive list of all TCRG publications, including research that evaluates the impact of public health policy, go to TCRG publications.

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References

  1. ↑abA. Gilmore, J.R. Branston & D. Sweanor, The case for OFSMOKE: How tobacco price regulation is needed to promote the health of markets, government revenue and the public, Tobacco Control, 2010, 19:423-430, doi:10.1136/tc.2009.034470
  2. ↑M. Scollo, J.R. Branston, Where to next for countries with high tobacco taxes? The potential for greater control of tobacco pricing through licensing regulation, Tobacco Control, 2022;31:235-240, doi:10.1136/tobaccocontrol-2021-056554
  3. ↑Introduce Price Cap on Cigarettes to Reduce Smoking: Study, The Independent, 3 March 2022, accessed March 2022

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