Friday, July 18, 2014

Who's the Real Cigarette Monopolist?

Holman Jenkins gets it:
Hooray for the merger unveiled Tuesday between Reynolds American and Lorillard, the nation's No. 2 and No.3 cigarette companies. Vetting of the deal by federal trustbusters should be instructive if not hilarious. Experts expect Reynolds and Lorillard to face tough sledding. The parties themselves propose painful spinoffs, including Kool, Salem and Winston, to appease the government.

The puzzling question is why? The Federal Trade Commission, which is likely to get the job, often lives in la-la land, but this case breaks all records for novelty: tinkering in the name of "competition" with a cartel deliberately created by government to exploit the demand inelasticity of smokers for the financial benefit of government.

A cigarette pack today fetches roughly $2.50 at the factory gate, on which government collects $3.80 on average in state and federal taxes as well as payments due under the so-called Master Settlement Agreement of 1998, when Florida and other states sued the industry for the Medicaid costs of people supposedly fooled into smoking by cigarette advertising...

Now if the FTC were a remotely interesting agency, it might simply refuse to vet a Reynolds-Lorillard merger, saying its pro-competition mission is obviously irrelevant when government's overwhelming priority is to exploit addicts to enrich government. Even better, the FTC could belatedly go to war with the 1998 settlement as a gross insult to the Sherman Act.

Of course, the FTC will do neither. Lamely, the agency will go through the motions of "protecting competition" from a Reynolds-Lorillard combination while demurely averting its eyes from larger ironies.

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