Economics and Government

From the editorial pages of the Wall Street Journal ($$):

It's not surprising that Democrats Ted Kennedy and Henry Waxman are promoting something called 'The Family Smoking Prevention and Tobacco Control Act.' But you'll never guess who else is thrilled by their proposal: the Marlboro Man himself.

The bill would, for the first time, empower the Food and Drug Administration (FDA) to regulate cigarettes and other tobacco products. With this new authority, the FDA could place further restrictions on tobacco product advertising and require lower nicotine content in cigarettes. So why does Philip Morris, by far the largest cigarette company in the world and the maker of the famous Marlboro brand, like the bill?

The answer is familiar to anyone who knows how regulation works in the real world: The tobacco industry leader figures that any new regulation will burden its smaller rivals with disproportionate costs and thus help preserve its own market share and profit.

Wall Street certainly agrees. As Morgan Stanley Research recently told its investment clients, 'We want to emphasize that we are not concerned by the prospect of FDA tobacco regulation.' It added that FDA regulation could provide 'an additional and potentially effective legal defense,' and 'potentially higher relative costs for smaller manufacturers, which could help to further narrow premium versus deep-discount pricing gaps.'