Assessing market competition in the Philippine cigarette industry
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Philippine Competition Commission / University of the Philippines School of Economics, Philippines
Action for Economic Reforms, Philippines
Publication date: 2018-03-01
Tob. Induc. Dis. 2018;16(Suppl 1):A129
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The recent passage of the Philippine Competition Act has caused many to rethink the market structure of Philippine industries. Foremost is the cigarette industry, whose structure bear important implications on the health of Filipinos.
A competitive cigarette industry may mean price wars and intensified advertising, disproportionately harming the young and the poor. On the other hand, a concentrated industry may mean a dominant player with ability to engage in predatory pricing. The latter will also likely possess power to lobby against tobacco control policies.
In this study, we assess the market competition in the Philippine cigarette industry, and its correlation with cigarette affordability in recent years.

Using retail volume data from Euromonitor International and financial reports from the Securities and Exchange Commission, we calculate for various measures of market concentration such as the Top 4 Concentration Ratio (C4), the Herfindahl-Hirschmann Index (HHI), and the Dominance Index (DI) over the period 2007 to 2016. We then compare these measures against cigarette affordability trends.

Across all measures, we find a highly concentrated cigarette industry. C4 ratios ranged from 97%-99%, HHI from 4754-8848, and DI from 7479-9973. In 2010 when Philip Morris acquired Fortune Tobacco, industry concentration peaked (HHI rose by 72% and DI by 33%). In 2012 when the Sin Tax Law was passed, competition slightly intensified with Mighty Corporation taking advantage of the transitionary dual tax structure.
Most significantly, fluctuations in market concentration did not affect cigarette affordability. A pack of cigarettes costed 7.4%-8.4% of the daily minimum wage between 2006-2012.

Assessing the market structure of the cigarette industry better informs the formulation of effective tobacco control regulations. For a concentrated cigarette industry such as in the Philippines, an effective tax policy must temper the power of companies to absorb taxes so that these are passed onto consumers to discourage smoking.

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