Tobacco will simply pass along the costs to millions of addicted customers and reap the rewards of higher stock prices, economists say. Co. The explanation for this seeming contradiction draws on the lessons of elementary economics, bringing from classroom to cash register classic textbook terms as supply and demand and present value. But perhaps the most important economic concept highlighted by the settlement is oligopoly. Dr. Harris served as an expert witness for Florida in its effort to extract Medicaid costs from the tobacco companies. And there is virtually no threat that new contenders will challenge the oligopoly.
Brand names are well established and start-up obstacles daunting.
That's not to say the industry is made up of equally strong players. Some in the industry fear the deal and its advertising restrictions will add to the No. 1 player's enormous clout, giving Philip Morris a nearly overwhelming edge at the expense of weaker rivals. That fear now is contributing to Washington delays in advancing the settlement, which still needs President Clinton's response and congressional approval for the industry to win broad liability protection. All of which spells more wrangling in Washington, where policy makers insist the existing settlement is too favorable for cigarette companies yet the companies are reluctant to make more financial concessions. Few believe the industry will walk away from the deal, although RJR's support seems the more fragile.