Special communication company in each of the world’s largest cigarette markets had a market share of between 28% and 86% (table 1). The most striking indication of the highly concentrated nature of cigarette sales is the three-ﬁrm concentration ratiodthe total market share in each country accounted for by the three companies with the largest market share. With the exception of Indonesia, in all the major markets just three ﬁrms control at least 80% of the market, and in many markets the top three ﬁrms account for more than 90% (table 1). To put such ﬁgures into perspective, the UK Competition Commission investigates mergers between companies that would result in ﬁrms gaining more than 25% market share or less where it appears likely there would be a substantial lessening of competition.4 This highly concentrated nature of cigarette markets is exac- erbated by the signiﬁcant underlying barriers to market entry by new cigarette manufacturers which have inadvertently been ampliﬁed by tobacco control measures, notably bans on adver- tising and promotion.5 These measures are essential and effec- tive components of tobacco control strategies6 and are thus likely to expand in both scope and geographical reach. In addi- tion, the product is highly addictive and there are no real alter- natives, whether in the form of pharmaceutical nicotine or alternative tobacco products, currently available and able to compete with cigarettes. This market failure gives cigarette companies immense pricing power which in turn is exacerbated by tobacco tax policies, the most effective tobacco control policy available.6 Taxes make up a large portion, and manufacturer ’s revenue a small portion, of the ﬁnal price consumers pay. As a result, small increments in the manufacturer ’s margin have negligible impact on demand but equate to big increases in manufacturer revenue. This is particularly true in countries which have high speciﬁc tax levels. As normal competitive forces are absent, the resulting oligopoly can raise prices seemingly at will, generating sustained high proﬁts, signiﬁcantly higher than those earned on other consumer staples.7 As table 2 shows, the proﬁtability of Europe’s two largest tobacco companies (measured using the EBITA Margindthe ﬁrms’ earnings before interest, taxation and amortisation expenses have been deducted as a proportion of its total revenue) is signiﬁcantly greater than that of comparable consumer staple companies. Currently, tobacco proﬁts are approximately double those of most other companies and these very high returns are predicted to continue into the future. Only one ﬁrm, Diageo, comes close to matching the high proﬁtability of the tobacco companies; Diageo stands out as being abnor- mally proﬁtable in the beverages industry sector and may also beneﬁt from market power, reportedly enjoying 50% of the UK gin and 40% of the global vodka market.8 These excess returns, through reinvestment in brand marketing, then further raise the barriers to market entry. In short, the immense proﬁts cigarette companies make from selling a product that kills one in two of its users9 is not because of some breakthrough intellectual property or other typical marketplace advantage. Rather, it is a classic example of market failure. How increases in speciﬁc taxes can beneﬁt tobacco companies Ironically, this situation has been made worse by government cigarette excise policies in two main ways. First, in many Cigarette market shares (%) by global brand owner for the major cigarette markets*, 2008 Canada China Germany Indonesia Italy Japan Russia UK USA 21.3 59.0 10.8 0.1 0.6 0.2 98 36.2 20.0 5.0 25.6 52.9 24.1 16.2 2.9 24.4 10.2 64.9 25.4 19.6 36.9 9.2 6.3 8.1 38.8 43.9 India 12.1 1.3 58.3 10.9 9.2 0.4 22.6 2.7 28.3 13.8 5.9 5.5 Table 1 Company Philip Morris International Inc British American Tobacco Plc Japan Tobacco Group Plc Imperial Tobacco Group Plc China National Tobacco Corp ITC Groupy Golden Tobacco Ltd VST Industries Ltd Godfrey Phillips India Ltdz Gudang Garam Tbk PT Djarum PT Bentoel Internasional Investama Tbk PT Nojorono Tobacco Indonesia PT Philip Morris USA Inc Reynolds American Incy Lorilard Inc Liggett Vector Brands Inc Soci´et´e Industrielle des Tabacs du Cameron SA Donskoi Tabak OAO Private label Others Total No. of companies with market share >10% No. of companies with market share >25% Three-ﬁrm concentration ratio (cumulative share of market of three biggest companies by market share) Brazil 9.7 86.3 1.4 2.6 100 1 1 97.4 8.9 100 3 1 91.1 1.2 100 1 1 98.8 9.9 3.3 100 3 2 81.8 7.8 100 3 1 81.3 21.2 100 3 1 64.7 4 100 3 1 93.2 0.5 100 3 1 99.5 3.7 5.2 100 3 2 81.9 1.7 1.3 100 2 2 90.8 Euromonitor from trade sources/national statistics. Data obtained: 23 September 2009. Note: Where companies other than those listed have a market share of 1% or less, their share has been added to the ‘Others’ category. *Data given for the world’s largest cigarette markets (China, Russia, US, Japan, Indonesia, Ukraine, Brazil, India), plus the two largest European markets (Italy and Germany) and the UK. yPart owned by British American Tobacco. zPart owned by Philip Morris International. 424 Tobacco Control 2010;19:423e430. doi:10.1136/tc.2009.034470 0.4 4.0 48.4 26.5 10.1 1.8 8.8 100 3 2 85