Public policy and market competition: How the master settlement agreement changed the cigarette industry

Federico Ciliberto, Nicolai Kuminoff

Research output: Contribution to journalArticle

4 Scopus citations


This paper investigates the large and unexpected increase in cigarette prices that followed the 1997 Master Settlement Agreement (MSA). We integrate key features of rational addiction theory into a discrete-choice model of the demand for a differentiated product. We find that following the MSA firms set prices on a more elastic region of their demand curves. Using these estimates, we predict prices that would be charged under a variety of industry structures and pricing rules. Under the assumptions of firms' perfect foresight and constant marginal costs, we fail to reject the hypothesis that firms collude on a dynamic pricing strategy.

Original languageEnglish (US)
Article number63
JournalB.E. Journal of Economic Analysis and Policy
Issue number1
StatePublished - Jan 1 2010



  • Master Settlement Agreement
  • cigarettes
  • competition
  • demand
  • discrete choice

ASJC Scopus subject areas

  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)

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