Whats up with minimum prices on cigarettes?

I see it all the time advertised on the signage of gas stations and convenience stores.

“We sell cigarettes at state minimum prices.”

Why is there a minimum price? Why can’t i play capitalism, sell cigarettes for $1 a pack and just hope people buy other things?

Are there other goods that have state minimum prices?

Bonus question: Are there any products that have state maximum prices?

If you sold them for $1 you’d take a bath because you’d be eaten alive by taxes, even if you could sell them for those prices, which you can’t. The states set minimum prices.

Here’s an example from Indiana.

I would presume that they set those prices because they don’t want people like you using them as loss leaders to get people into the stores. Smoking is one of the bigger bogeymen around, and anything that encourages more smoking is verboten, even though the state can’t afford (and doesn’t want) to have people quit altogether lest they lose the tax revenue.

Utilities often have rate caps, but nothing else comes to mind.

Here’s a study on minimum pricing.

They have reasons other than mine for it, and as they studied it I will certainly give way to, although I’m still not willing to discount my explanation entirely. From the abstract:

Washington state has a maximum for various services performed by a notary public. I cannot charge more than $10 for a simple stamp, though I could choose to charge less.

Some states have maximum rates for payday advances.

Rent-controlled apartments exist in many cities, though it doesn’t translate to a simple maximum at a state level.

Strangely enough, Russia seemed to have maximum prices for cigarettes–the Dunhills I smoked there had a stamp on the bottom of the pack, to the effect of “60 руб. макс.” Generally I found them sold at that price; now and then a few rubles less.

Milk prices generally have floors set through a combination of federal and state organizations, you’ll sometimes see a retailer fined for selling milk too cheaply.

A lot of places have state-mandated minimum markups for gasoline.

Ontario, Canada has a minimum price for beer ($25.60 per case of 24 bottles); supposedly it’s part of the Liquor Control Board’s “social responsibility” mandate. Seems more like price gouging to me.

Simple. They don’t want you smoking so they try to discourage it by raising prices. Personally I’m of the belief that it isn’t the government’s business what I buy or do, but hey, guess I’m the crazy one.

They tax what they don’t want you to have and do and provide cuts for things they do want you to have and do. Behavior modification at its finest.

It may also be an attempt to discourage young people from trying it, by making a high cost of entry. Think about it this way - think if you were a kid and saw that you could try smoking for only 25 cents - would you go for it? Then, the tobacco companies can jack up the price when you become addicted.

In years past, cigarettes were handed out free in an attempt to get lots of commited smokers, and well, if you had 'em, you might as well have smoked 'em.

Exactly. The government is attempting to modify behavior. It’s not the government’s job to stop kids from buying cigarettes. That’s the job of those kids’ parents.

And even if it were the government’s job, the way to do it would be by enforcing age requirements (which they already do), not by setting a minimum price.

The only time the government should ever interfere with what a company charges for its products and services is with controlled monopolies (USPS, utilities, etc).

This is all debatable (except the first sentence I guess) and as such, belongs in a different forum.

I am far too cynical to believe that the government raises prices on things when they want to discourage its purchase. These types of regulations are always based on some economic factor, either to maximize government revenue, protect special interests, etc. Government knows that cigarettes have very low price elasticity (price increases do not reduce consumption much); in fact, this is the classic example in Econ 101 in the elasticity lecture.

Michigan apparently has state mandated minimum pricing for liquor; many places around here advertise they sell their liquor for such a price. It has to be something of a function of the producer’s cost; I can’t imagine that that state sets a price for absolutely every brand and packaging of liquor.

It is the classic example of price elasticity of demand, but nevertheless there is a price where most people will stop smoking or find a substitute for it. The government must be careful that it doesn’t impose too much of a tax lest it lose the tax revenue and have to impose taxes on something else to make up the shortfall. The government loves sin taxes, but when they become too cost prohibitive they have to stick other people with the bill, and tax increases anger people who are more than happy to get by on the backs of others.