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Unpublished Paper
(Wrongly) Regulating the Cigarettes Market
  • Lucia Helena Salgado, Universidade do Estado do Rio de Janeiro
  • Humberto Bettini
  • Rafael Pinho de Morais, Universidade do Estado do Rio de Janeiro
This paper aims at exploring the peculiarities of the cigarettes market and its consequences in terms of the desired regulation and the impacts of undesired regulatory measures. The main idea behind the paper is the complementarity of regulatory policies independently implemented by different governmental bodies in the presence of a non- negligible black market, not compliant to any regulation. We build a model where companies choose between going legal or illegal – where the latter includes fake products produced locally as well as smuggled cigarettes, but could be easily extended to apply also to legal brands produced by firms not duly collecting their taxes. The companies’ choices are influenced by the demand substitutability between the legal product and the illegal one. This paper motivation comes from the recent move of Brazilian authorities to strengthen the control over cigarettes companies and to increase the price of the products, as well as te introduction of standardized packaging in Australia since December 2012. As our model shows, those measures – which only impact the legal market, the one complying with regulatory and sanitary measures – totally backfires in the presence of an important illegal market, as they increase the payoffs and thus incentives of going or remaining illegal. If introduced in such context – quite common in most developing and least-developed countries, but not only – they therefore lead to lower product quality and thus huge negative public health impacts.
  • cigarettes; regulation; illegal markets
Publication Date
Spring April, 2013
Citation Information
Lucia Helena Salgado, Humberto Bettini and Rafael Pinho de Morais. "(Wrongly) Regulating the Cigarettes Market" (2013)
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