imposition of a 50 pence price cap would result in a 40 pence reduction in retail price unless the government increases taxes accordingly. This 40 pence per pack currently accruing to tobacco companies as a result of a market failure would thereby be transferred to the national treasury. The regulator would also have to consider whether this regulated price should change during each of the years of the price control period (usually between 3 and 5 years). Any permitted changes would be based upon predicted changes in average prices in the economy, predicted changes in industry costs and efﬁciency savings the regulator feels the company can make. For example, if average prices were seen to increase by 3% per year, and companies were judged able to operate more efﬁ- ciently (ie, by removing unnecessary spending while achieving the same outputs) to the tune of 1% per year, the regulator would allow the 50 pence to increase by 2% in each of the subsequent years of the price control period. Furthermore, when the regulator considers its next periodic price review, it would act as above, but would also consider what happened in the past control period. If some companies had been able to generate efﬁciency savings of more than the 1% assumed, then these additional savings could be taken into account when setting the next price controls. Thus any efﬁ- ciency gains in production are ultimately gained by society, since beneﬁts to the company are limited to one price control period. Similarly, changes in the price of key inputs, for example, or changes in the marketplace can also be taken into consideration, and it is this periodic ﬂexibility to look forwards as well as backwards which ensures that neither the industry nor society is stuck with an unsatisfactory situation. Within the system described above, individual companies or brands operating within the market may be allocated different prices depending on the costs of inputs and manufacturing, but given that most cost differences reﬂect packaging and marketing spend, differences would probably be marginal. The regulated companies still have an incentive to run their operations efﬁciently since it is the price they can charge that is regulated, not the proﬁts they can make. Thus by avoiding unnecessary costs, the ﬁrms can boost the proﬁts that accrue to shareholders in the short term. In contrast to the current situ- ation, they cannot use price increases as a means of boosting revenue. OTHER POTENTIAL BENEFITS There are also major public health beneﬁts of introducing RPI-X type price regulation. It would remove the possibility of previ- ously documented collusive price ﬁxing,26e29 since prices would now be set by the regulator rather than by the ﬁrms themselves. It could also limit the use of price as a marketing tool,30 since differences between companies/brands would simply be based on genuine costs of production rather than attempts to segment the market through price. By signiﬁcantly reducing price differ- entials, it would prevent down-trading to cheaper brands, a trend which has increased in numerous markets in recent years.31e33 Moreover, if prices and taxes were applied to hand- rolled and other smoked tobacco products in a similar way as to cigarettes, as they should be, regulation could also be used to prevent down-trading to hand-rolled products.33 34 In order to set the price caps OFSMOKE would inevitably need to closely monitor the industry, and this could help highlight, and ultimately eliminate, other practices including youth marketing35 and cigarette smuggling.36 For example, if, despite marketing restrictions, companies continued to actively and inappropriately promote their products to youth, then promotional budgets Tobacco Control 2010;19:423e430. doi:10.1136/tc.2009.034470 Special communication could be given limited allowances during the price review process by identifying these activities as targets for the efﬁciency savings. This would have the added beneﬁt of requiring companies to disclose their promotional activities as currently required in Canada, for example.37 Even if marketing spend was not speciﬁ- cally targeted in this way, the system would indirectly limit the industry’s marketing budget by removing its ability to re-use its efﬁciency savings, which for some companies have been substantial in recent years.38 The system of regulation could also be structured to help address the problem of tobacco smuggling. For instance, the price controls established would be based solely upon legal sales, which would give the manufacturers a direct incentive to help combat smuggling since the production costs of illicit sales would be ineligible to be counted as a legitimate expense, and any revenue gained from smuggled products would be more readily identiﬁed. Furthermore, we might even imagine a regime that includes penalties triggered by smuggling rates: high smuggling and black market sales would result in lower future prices for legitimate sales by way of a penalty for undesirable actions (or the lack of desirable actions). The scope of regulation is also potentially ﬂexible. Govern- ments could set the scope of price regulation fairly narrowly on cigarettes and other smoked tobacco products or, should the policy of harm reduction ﬁnd favour, more broadly on all tobacco products, or all nicotine products including pharma- ceuticals. Thus governments could use the system to help direct changes it desires. While a narrow focus on price regulation could have the advantage of reducing the likelihood of regulatory capture by the industry, since such regulation is relatively straightforward and has a documented record of success in other areas, the regulatory remit could, over time, be expanded beyond price. This could occur in a number of directions to address, for example, product content, marketing, distribution, access and underage sales that the manufacturer and retailer, in varying degrees, could be held responsible for. Such increased remit would bring the system in line with proposals for more comprehensive tobacco market regulation that have previously been made39 and might have a number of advantages. First, it might allow for greater inte- gration and consistency in tobacco policy. Second, by addressing price, access to and promotion of all nicotine products within one regulatory system, it could help address the current imbal- ance in the nicotine market in which the most harmful nicotine delivery products (cigarettes) are the most accessible and the least harmful (pharmaceutical products) the least accessible.40 41 The issue of underage sales is somewhat more complex as both the manufacturer and the retailer could be held responsible, but could also be addressed, at least in theory, if, for example, companies were held ineligible to proﬁt from underage tobacco sales. The most obvious beneﬁt of RPI-X regulation, however, is the direct reduction in the tobacco industry’s proﬁt, because this will directly reduce the incentive and ability of tobacco companies to ﬁght public health measures. Not only will the companies have fewer funds available to do this, but the industry would also be partially insulated against tobacco control measures and less able to argue that they would have negative economic impacts. When setting future price controls, OFSMOKE would take into account past and likely future changes to tobacco policy and if this included public health measures which would directly affect the industry, it would need to reﬂect the new constraints in the regulated prices the industry would be allowed to charge. Thus by removing some of the potential adverse affects on industry proﬁtability, the system 427