Hi all. I just read about the expected price increase for cigarettes, (8¢ per pack) to offset the cost of the settlement the tobacco companies agreed to pay. Pardon me, but I thought that there were laws against this kind of thing. Specifically, that a company couldn’t increase the price of its goods or services to pay the price of a lawsuit, or in this case a “settlement”. Are there, or aren’t there?
Bwahah.
Of COURSE they can raise prices to offset losses, whether those losses are from a lawsuit or from a bad tobacco crop. Do you think that there should be laws against this? And if so, where would you expect the companies to come up with the money to pay for lawsuits and other unexpected expenses?
It’s also in the interest of the plaintiffs for the cost of cancer sticks to go up. They get paid and fewer people may smoke because of higher prices.
Well, I felt that if you’re trying to punish a company, that it would make sense that they’d have to come up with that money from other sources. (Preferably THEIR pockets.) Simply passing on the price of a lawsuit to the consumer is no deterent to corporate wrongdoing.
Are you that naive?
Those law suits are about money, deep pockets, and greedy lawyers. When you say “their” pockets, where do you think they get “their” money? A weekly allowance from mom & dad?
what you’re hinting at is some sort of socialist rule of price freezing. Nixon tried that and it helped screw up alot of businesses not to mention the economy in general.
I have to agree with PK’s sentiment, if not his tone: most big corporations, especially those that manufacture products (as opposed to investment banks, insurance comapnies, et c.) don’t generally have ‘deep pockets’ in the usual sense of liquid holdings. It just doesn’t makes sense for a company whose well-being depends on continual sales to sock cash away – they generally spend it on advertising, or salaries, or R & D (or, in tobacco’s case, defense lawyers). When they say that the $145,000,000,000 Florida lawsuit award is more than twice the industry’s entire net worth (around $68 billion), they’re mostly considering stock value, which the companies can’t even necessarily sell (who wants to buy stock in a company that’s in for 50 more years of irresponsible lawsuits?) The ‘deep pockets’ of the tobacco industry are more about them selling a highly successful product than they are about any inherent net worth.
I don’t know your anti-trust laws (I’m Australian), but if they were to raise prices it would be evidence in economists’ minds of collusive behaviour (which is certainly illegal under our Trade Practices Act).
The damages claim as I understand it is for damage already done rather than continuing badness. If that is the case it is a sunk cost: it has no effect on current costs of production. By and large competitive industries price somewhere close to marginal cost (the cost of the last unit produced). To increase prices to recoup the loss would require agreement (perhaps tacit, maybe achieved by canvassing the option by press release).
Mind you they could probably argue that the price rise represents an updated view on the costs of being sued by current smokers.
Is the amount a deterrent? Of course: why do you think they fought the claim?
picmr
doesn’t the terms and conditions 9of the agreement between the states and the tobacco companies) make the state governments complicit in futre cancer deaths?
The big payouts to the lawyers and state governments will be paid out of future sales of cigarettes. This means that MORE people will die of cancer and smoking-related illnesses…so aren’t the lawyers and the states co-conspirators in an agreement thatwill result in the deaths of more people?
Just a theoretical question…but how does this benefit anyone (except big tobacco, the lawyers, and the state governments?)
Well up until the Florida verdict (with its ridiculously high punitive damage award) I would have said that at least the state settlement benefitted smokers, by allowing them to continue to buy cigarettes, which quite evidently make them happy. But now it becomes clear that the lawyers won’t be happy until the tobacco companies are driven out of business, with all of their wealth redistributed to foolish smokers and opportunistic trial lawyers, both of whom should know better. And then what? If the tobacco industry is obliterated, besides temporarily destroying the economies of several states, what will be accomplished? Will all future companies have to design and market products on the assumption that their consumers will be helpless morons, unable to comprehend risks? Will chainsaw companies be shut down by lawsuits over accidents? Will car companies be held responsible for the 45,000 annual driving deaths? Or will they only be sued over the cost of obesity (which, after all, would be much lower if we all walked everywhere)?
It may be unpleasant to some, but the free market brings with it responsibility, for the consumer as well as the purveyor, and if we demand that everything be perfectly safe and idiot-proof, we reduce our OWN freedom to choose the products and services we desire.
(/rant)
(/hijack)
Hey, a rash of lawsuits in the 1970s killed the American small airplane manufacturers… IIRC, they stayed in business, but refused to sell their wares in America.
Cessna stopped making single-engine planes due to the lawsuits, but a few years ago Congress passed a law limiting the manufacturer’s liability to 18 years, & Cessna began making those models again.