A strategy for controlling the marketing of tobacco products: a regulated market model

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A strategy for controlling the marketing of tobacco products:a regulated market modelR Borland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Correspondence to:Ron Borland, VicHealthCentre for TobaccoControl, Cancer ControlResearch Institute, TheCancer Council Victoria, 1Rathdowne Street, Carlton,Vic 3053, Australia;[email protected]

Received 20 July 2003Accepted26 September 2003. . . . . . . . . . . . . . . . . . . . . . .

Tobacco Control 2003;12:374–382

Objective: To outline a novel strategy for controlling the tobacco market.Arguments: More comprehensive controls over the tobacco market are essential and long overdue.Effective controls need to encourage the development of less harmful products; control commercialcommunication to ensure that potential harms are highlighted relative to any benefits; and providemechanisms to move consumers away from tobacco use, or at least towards less harmful alternatives.Achieving this by regulating the existing industry is one strategy. This paper puts the case for analternative: to have marketing controlled by an agency (called here the Tobacco Products Agency, or TPA)which tendered to manufacturers for product and which distributed to retailers in ways that reduceincentives to bend or break the law. The TPA would be backed by legislation that made tobacco acontrolled substance with possession sale and use only allowed as permitted by the regulations, which inreality would be only as provided by the TPA.Conclusions: The overall effect of such a model, which we call a ‘‘regulated market model’’, would be toeliminate most of the incentives and remaining opportunities for commercial promotion of tobacco and tocreate incentives to encourage the development of less harmful tobacco products. Such a model preservesthe competition inherent in a free market, but directs it towards the challenge of reducing the harm fromtobacco use.

Tobacco smoking causes so much disease1 2 that it isestimated to kill approximately half of its regular longtime users.3 There is no known safe exposure level to

smoked tobacco products, although some forms of smokelesstobacco product (for example, the Swedish product calledsnus) are notably less harmful than smoked products.4 Theharm caused by tobacco products is predominantly due tolong term exposure to tobacco related toxins. The worldcommunity is currently in the process of ratifying aFramework Convention on Tobacco Control (FCTC) to helpcontrol the problem.5

The challenge of minimising the social costs from tobaccouse can be encapsulated in four major tasks: discouragingpeople from using tobacco, encouraging existing users toquit, protecting non-smokers from exposure to harmfultobacco smoke, and reducing exposures to tobacco relatedtoxins among any continuing users. The challenges involvedin preventing tobacco use and facilitating smoking cessationwill be minimised if we can eliminate activities of the tobaccoindustry that make the task more difficult by making tobaccouse more attractive than it intrinsically is. This effectivelymeans exercising control over the tobacco market.

Recently, Liberman and Clough6 have canvassed argu-ments about the possible illegality and certain immorality ofmany current tobacco industry practices. They make acompelling case that many current industry practices maynot only be subject to civil sanctions, but may also breakcriminal laws. In Australia, this includes laws to preventconduct endangering life and corporate manslaughter.Liberman,7 in a related paper to this one, argues that thefundamental problem is the nexus between profitability andthe harm caused by tobacco: the more you sell, the moreprofit you make, the more people you harm nexus needs to bebroken by changing the incentive structures for operating inthe tobacco business. He goes on to suggest the desirability ofgovernment control over both manufacturers and retailers.

This paper explores the viability of controlling the tobaccomarket by focusing on controlling two main ways tobaccocompanies influence tobacco use: through designing productsto be more attractive to consumers, and by promoting themin ways that add extrinsic value (fig 1). By promoting theirproducts and by adding ingredients to their products to makethem more attractive to consumers, tobacco companies areincreasing the value of engaging in an inherently dangeroushabit, one that is highly addictive.

The analysis in this paper is grounded in the science baseconcerning the composition and formulation of tobaccoproducts and the behavioural implications of how thatinformation is communicated.8 9 It adapts ideas fromothers8 10 11 and from the work of our group.7 12 There isnow an emerging consensus that tobacco products need to bemore strongly controlled,8 13 but no clear consensus as to howto do this. Currently, no country has anything approaching acomprehensive regulatory framework in place: one that caneffectively control both product composition and productpromotion. One aim of this paper is to broaden thinkingtowards alternative models of control by outlining onepossibility that minimises the role for a formal regulator.

Major gains have been made in tobacco control incountries like Australia that have taken the issue ser-iously.14 15 There is good evidence that strong restrictions onthe promotion of tobacco products and other countermeasures reduce smoking.16 However, even among the mosteffective and best resourced jurisdictions, anything fromaround 15% of the adult population continue to smoke on adaily basis and in most countries many more do so.14 It is alsoproving extremely difficult to prevent young people becoming

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Abbreviations: FCTC, Framework Convention on Tobacco Control;RMM, regulated market model; TPA, Tobacco Products Agency

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addicted.17 The tobacco industry has been remarkablysuccessful in undermining public health efforts, probablybecause only short periods of experimentation are needed fordependence to develop, and in part because countries havenot consistently invested the resources needed to overcomethe effects of tobacco industry marketing. It is inefficient tospend public money to overcome company activity, ratherthan more effectively controlling it.

Better controls will not eliminate tobacco use. At leastsome smoking is due to dependence and experienced benefits(independent of any debate about whether these experiencesreflect any enduring benefit). There is likely to be acontinuing demand for tobacco products, and as a resultprohibition will not eliminate use, and could create socialharm by making lawbreakers of otherwise good citizens. Thatsaid, tobacco should not be treated as an ordinary consumerproduct. If tobacco products are to be legally available, thereneed to be controls to ensure that they do not have valueadded to them, and are as harm reduced as possible. It is alsocritical that any reductions in the harmfulness of individualproducts do not have unwanted effects such as encouraginggreater use, or acting as a conduit to use of more dangerousforms.

If controls are to be effective, they need to be framed withan understanding of the realities about tobacco. Inhalingcigarette smoke is currently the most efficient way ofdelivering nicotine in a psychologically desirable way, makingcigarette smoke the most addictive form of tobacco. Most ofthe harm from tobacco use comes from chemicals other thannicotine. Many of the harmful chemicals are created bycombustion. Cigarette smoke is particularly harmful in thisregard. Thus the most attractive form of nicotine delivery alsohappens to be one of the most toxic. Past attempts to breakthis nexus between attractiveness/addictiveness and harm-fulness have failed. This may be partly because of constraintsthe industry has imposed on itself by trying to pretend thatsmoking is not really harmful or addictive.

After decades of deceit and denial some tobacco companieshave admitted that their products are harmful, and nowclaim to be diligently moving towards developing lessharmful products.18 However, there is currently no tobacco

product which has both a lower harm profile and will be usedas a substitute for cigarettes by most tobacco users.

Tobacco companies, like all corporations, exist to maximiseshareholder value. Monetary profits are an important part ofthis, but other less tangible benefits, such as pride in owningshares (or in the case of tobacco companies, shame),contributes to share and thus company value. Tobaccocompanies get no benefit from killing half their long termcustomers. Unfortunately, without less harmful products,they are caught in a dilemma: to keep making money, theyhave to cause harm and can do little to reduce that harm.

Tobacco companies have little alternative than to search, orat least seen to be searching, for less harmful products.Currently some tobacco companies, like Philip Morris,19 areseeking regulative protection. This is presumably mainly toprotect them from endless litigation, but this is notinconsistent with facilitating the search for less harmfulproducts. Any such regulation should give priority to thegoals of public health and broader social wellbeing. A keychallenge for tobacco control is to avoid allowing productsthat appear to have harm reduction properties, only to findthat they provide little or no benefit to health. The false harmreduced innovations such as filters and light cigarettes9 havefuelled scepticism about the value of harm reduction.However, failure to regulate effectively is the surest way ofallowing these mistakes to be repeated. The possibility of lessharmful products is one important reason for urgentlyneeding a comprehensive regulatory framework.

COMPREHENSIVE REGULATION OF THE TOBACCOINDUSTRYThe rationale for controlling the tobacco market, as part of acomprehensive tobacco control strategy, is to minimisepopulation harm from tobacco use by controlling the formand contents of, and information about, tobacco products inways that minimise population exposures to tobacco relatedtoxins.

In principle, the harmfulness of a tobacco product can bereduced in three ways: by making it less toxic per unit used;by making it less addictive per unit used; and/or by making itless palatable. The first of these reduces harm directly, unless

Figure 1 Tobacco marketing andmajor ways it can affect tobacco use.

Controlling the marketing of tobacco 375





there is compensation by increased use; while the latter twoshould reduce motivation to use and/or continue use, thusreducing lifetime exposures. The regulatory framework needsto allow progress on all three.

The ways in which the products are used affects theirharmfulness. Use is affected by characteristics of the product,experiences of using, and by beliefs about the consequencesof use. Consumer beliefs and behaviours are affected by whatis communicated to them, including by the ways tobacco ismarketed.

Regulation of tobacco products needs to ensure theprovision of both adequate consumer information andeffective controls on marketing. However, tobacco users aretypically dependent on the product and are severely limited intheir capacity to assess long term consequences of use. Thisextends to low capacity to properly assess harm reduction orexposure reduction claims. Thus, the preferred option forchanges in product toxicity is to continually upgradestandards of exposure (or harm) for products, such that thedirtier forms of products are phased out. This brings changeunder the control of health agencies, rather than relying onconsumers who are not able to assess the claims properly.20

That is, it eliminates the need for claims about relativeharmfulness, which have a high capacity to mislead.

Controls over promotion are needed, among other things,to reduce the creation of extra social value for tobacco use.There need to be controls over packaging, product informa-tion, and sales. Governments are already moving to mandateincreasingly strong and comprehensive warning messages onpackages because tobacco companies have failed to actappropriately. Governments also realise that with productsas dangerous as tobacco, promotion should be eliminated,but perhaps because some form of promotion is essentialwhile companies market to consumers, have failed to ban italtogether. The fundamental question here is: what residualsocietal benefit is being retained in maintaining a directrelationship between tobacco manufacturers and consumers?In our view, there is no practical use, it arguably only acts toretain incentives for tobacco companies to subvert the lawsthat are designed to control their activities.

To be effective, regulators will also need ongoing access tosuch things as information about the composition andengineering of tobacco products, exposures when used,indicators of harm, patterns of use, effects of price, consumerbeliefs, and effects of communication about the product. Theregulatory framework should allow for the stable, yet flexible,control of all aspects of tobacco products and theirmanufacture, promotion, and distribution.

Regulation needs to compatible with the free enterprisesystem because, through the agreements administeredthrough the World Trade Organization, free enterprise iseffectively mandated for ordinary consumer products world-wide. The free enterprise system is one that is extraordinarilydynamic, which uses competition to encourage innovationand efficiency. It is also extremely good at building marketsfor products. Unfortunately, the latter is not a trait that isdesirable for products that society wishes to discourage.

There are a number of other constraints on achievingoptimal regulatory control over tobacco use.

N Consumer perceptions and preferences are critical to thesuccess of any strategy to change patterns of use.

N Competition to develop less harmful products is con-strained because consumers have poor capacity to identifysuch products correctly. This historically has allowed theproliferation of products with the appearance of reducingsome of the harm, but little of the reality.

N Companies have no natural incentive to reduce theaddictiveness of their products because users who become

dependent provide a long term market. Indeed, they haveincentives to increase addictiveness and to hide addictionenhancing modifications from regulators.

N The capacity of manufacturers for innovation in productdesign and their natural advantage in knowledge of theeffects of innovations means that regulators will always betrying to catch up. Regulators will be under pressure to beconservative to reduce the risk of allowing innovationswhich have undesirable effects, but which might other-wise be attractive.

N Companies need to communicate with consumers aboutpositive features of their products to encourage use. Theyonly provide information on harms when required to doso, and they have incentives to try to overshadow suchinformation by spending more resources promoting thepositive features.

N Companies need to identify their products, if consumersare to be able to choose them. Proprietary brand names arethe main means of achieving this. If companies areexpected to compete for the consumer market, thenrestricting branding by mandating completely genericpackaging becomes problematic: there needs to be someresidual link to the manufacturer/marketer.

N Where direct means of communication are restricted,companies have incentives to seek out indirect means. It isvery difficult to prohibit some forms of indirect promotionwhile products are branded by manufacturers. Becauseindirect promotion is often about associating productswith desirable lifestyles, it is doubly dangerous as it notonly promotes use of the products, but does so in a waythat focuses on non-essential elements and not intrinsic(including harmful) aspects.

N Companies compete in part on the basis of the ‘‘quality’’ ofthe products they produce. Quality includes the sensoryexperiences of use, largely taste and smell, but also packimagery and the look of the product. Products withdifferent sensory characteristics that are not immediatelyobvious before purchase (such as so-called light cigarettes)need to have some labelling to identify them if consumersare to be able to choose them.

N Current regulation makes it harder to market potentiallyless harmful nicotine products than it does to marketcigarettes because the latter are often caught up intherapeutic goods laws. Also in some countries, likeAustralia, smokeless tobacco is prohibited, even thoughsome of these products are much less harmful thansmoked tobacco.

Taken together, these issues mean that regulators arecontinually in an antagonistic relationship with tobaccomanufacturers and distributors because for the most partthey do not share common goals. Tobacco markets haveincentives to avoid controls that restrict their capacity toinfluence consumers and have a knowledge advantage overregulators who might wish to stop them. What is the bestway to regulate such products? If a system could be devisedwhere the incentives on tobacco companies were consistentwith the goal of harm reduction, the challenge of regulationwould be greatly simplified. Control over marketing couldprovide such a solution.

Marketing is where the power lies in the modern tobaccoindustry. Marketers can determine which products will besold, and thus can exercise virtually complete control overmanufacture (and thus indirectly, growers), because theychoose which products to sell. They can also build image ondistinguishing characteristics of products, and/or just on thebrand names themselves. Ownership of brands and thecapacity to exploit them is at the core of their business.

376 Borland





Marketers also have considerable influence over retailactivity, and can influence retail prices through settingwholesale prices. They need to communicate with consumersabout their products, although in the case of tobacco, mostremain stonily silent about the harmful side of the ledger.Control over marketing provides levers to change incentivesto facilitate more effective tobacco control regulation.

A REGULATED MARKET MODELThe proposed model to control tobacco marketing is a versionof what we call a regulated market model (RMM). Under theRMM, free enterprise companies would retain the right tomanufacture, but a monopsonistic agency would be set up tomarket tobacco products. This agency, which we call theTobacco Products Agency (TPA), would need a charter thatspecifies that it will service the existing market, but shape itto minimise harm. The TPA becomes the sole customer ofmanufacturers and importers. The TPA would requirecapacity to assess performance characteristics of products toallow it to make informed choices. Free enterprise growerswould sell to licensed manufacturers who would tender formarket share from the TPA. The TPA would control wholesaledistribution to retailers. The TPA could allow the currentpractice of for-profit private retailers to continue withretailers having contractual arrangements with the agencyrather than with the manufacturers. Figure 2 is a schematicdiagram of the model. This is a fundamentally different

model to a government monopoly. It is similar in manyrespects to the way alcohol is marketed in Scandinavia, mostCanadian provinces, and some US states, where the govern-ment controls distribution and sales. The key difference fromthe US and Canadian alcohol distribution monopsony is thatthe focus of the TPA is on control of marketing rather than ofdistribution, and it does not necessarily require that the retailoutlets are government run. This distinction is critical.Control over marketing means the TPA can control commu-nication about the products including branding.

The tobacco market would initially consist of most, if notall, of the products that are currently on the market, plus,once the TPA had the capacity to assess new products, arange of potential exposure reduced smoked and smokelessproducts*, plus any nicotine replacement products marketedfor non-cessation purposes. The TPA would have the capacityto withdraw more harmful products from the market asalternatives emerged and/or discourage their use throughhigher prices or other mechanisms. The initial emphasis onproduct modification would be on cigarettes, or their

Figure 2 The regulated market model.

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*In jurisdictions where smokeless products are banned, it may be worthallowing them onto the market to the extent that they are likely to besubstitutes for cigarettes, rather than a largely independent market. Thevalue of doing so would need to be clearly weighed, using theexperience of Sweden as a guide.






alternatives, as they dominate the market. It would move toreduce or eliminate additives and features that mask inherenttoxicity and/or enhance addictiveness. It would be able to setand revise performance and emission standards for toxiccompounds and also be able to introduce new products thatboth promised to reduce exposures and not appeal unac-ceptably to non-users of the more harmful products. Newproducts that in reality performed in unacceptable wayscould be withdrawn from the market or otherwise discour-aged.

The TPA will have a more dynamic and trusting relation-ship with manufacturers because it is in a customer-supplierrelationship, rather than being an independent regulatoryapparatus that stands outside the relationship betweenmarketers and consumers. This simplifies the complexprocess involved in using regulation to progress to lessharmful products, while at the same time maintainingcontrols to prevent unwanted outcomes. In addition to thecapacity to set standards (shared with ordinary regulators),the TPA can directly create incentives to better thosestandards with the offer of increased market share.

Tobacco manufacturers will have incentives to create lessharmful products because the TPA will have reasonablecapacity to make judgements on the harmfulness profile ofproducts, so that it can act like the ideal informed customerwho both wants and recognises less harmful products.Progress to market less harmful products can thus proceedas fast as consumers are prepared to allow. To achieve lessharmful versions of a particular product, the TPA couldspecify maximum levels of undesirable chemicals, and couldgive competitive advantage to those who did even better thanthe specified requirements. Changes in tender requirementscould be introduced in such a manner, and with such notice,as to allow manufacturers and importers the opportunity toadapt their capacities in order to continue to compete. TheTPA would need to take consumer choices into account, andwould have incentives to do so, to prevent it having unsoldstock and to prevent the development of black markets thatwould emerge if its policies were too far out of line withconsumer requirements.

By keeping manufacture in the hands of free enterprisecompanies, the model maintains the capacity for innovationthat is inherent in free enterprise, provided that it can ensurethe operation of competition. Competition could be achievedby having proportional tendering for products done in such away to ensure that several companies were allocated marketshare and thus kept in the market. Market share would beconsidered in terms of both the overall market and of share ofparticular products. Novel products would initially have onlyone supplier. If it looked as if such a product would achieve alarge share of the total market, or where combinations ofinnovations from different manufacturers held out thepromise of even less harmful, but acceptable products,patented innovations could be licensed to other manufac-turers for a negotiated fee or royalty. This would preservecompetition, while preserving incentives for innovation.

Such a system actually creates incentives for manufac-turers to disclose product information to the TPA. The TPAwould be in a position to stipulate that certain, specifiedinformation be supplied about particular products, or thatresearch about such products be provided to it. It is also intheir interests to provide extra information to convince theTPA of the merits of their tender proposals. That informationcould be made publicly available to enhance openness ofoperations. In addition to the information it gets fromtobacco manufacturers, the TPA will also need access toindependent research, plus the capacity to evaluate criticallyall the information. Independent research will be importantnot only to check industry research, but also to monitor the

consequences of decisions the TPA makes: on consumerbehaviour, on exposures to harmful constituents, and, in thelonger term, on observed health consequences. As surveil-lance information comes to hand, policies can be modified tomaximise the harm reduction capacity of the TPA’s activities.

Control of communication and marketing issues isobviously one of the most important parts of any regulatoryscheme. Balanced communication is most likely to comefrom a harm minimising public authority making decisionsand acting under a harm minimising statutory charter. TheTPA would be the main or only organisation with the right tocommercial communication with the public. It wouldexercise controls over what could be said by retailers aboutthe products they sell.

It is extremely difficult to eliminate positive promotion ofproducts when companies are competing to sell to con-sumers. The TPA could and probably would market productsunder its own name. A particular type of cigarettes could besourced from a number of different manufacturers, with theend consumer not knowing which. Where this was done, itwould effectively cut the relationship between manufacturerand consumer, and thus would effectively eliminate anybenefits from manufacturers marketing to consumers. Thusmanufacturers will lack incentives to break or bend lawsrestricting promotion of tobacco products (something thatthey are currently highly motivated to do, as the potentialgains are huge). Such a system also makes it easy to ensuredrab packaging. While the TPA would use its own genericbrands on the more harmful tobacco products (for example,Type 2 cigarettes), less harmful products (if they are everproduced) could be allowed to carry more attractive brands ifthere was any benefit in doing so. The TPA would also specifythe form and content of health warnings and other productinformation, including provision for regular updates asknowledge advances and/or gaps in knowledge are identified.This overcomes the problem of regulators having limitedcapacity to rapidly update warning information because ofthe time taken to introduce or amend regulations.

In summary, the RMM has:

N the innovative capacity of free enterprise to move to lessharmful products with safeguards to prevent marketing ofproducts that appeal to consumers regardless of harm

N capacity to remove incentives to over-promote positives oftobacco use and to inform consumers in a realistic wayabout harms

N capacity to influence price, in particular to prevent pricediscounting being used to grow markets

N capacity to take control over brands, as they are a majormeans of adding extrinsic value to tobacco products (as forother consumer products).

ENSURING THE TPA OPERATES APPROPRIATELYA major area of concern is whether we could trust an agencysuch as the TPA to serve the public interest. The TPA wouldrequire independent and open governance under a charterthat spelled out clearly its objectives. To achieve this, it wouldneed an independent board, with experts in appropriatefields, and sufficient distance from executive government toensure independence. The deliberations, decisions, dealings,and actions of the TPA would need to be as open as possible.This would reduce the risks of regulatory capture and ofcorruption of its purpose by forces within government moreconcerned with revenue than community wellbeing.

A monopsony is likely to be less subject to unbalancedinfluence than a monopoly. By its nature it cannot be assecretive in its operations. Under the proposed system,smaller tobacco companies are likely to proliferate as they

378 Borland





can be competitive when they do not require the large sizenecessary for mass marketing. This should result in the bigmultinationals becoming smaller. This should enhancecompetition, but in this instance competition that is moreclosely tied to the community interest. The existence of alarger number of players makes it more difficult for the TPAto do inappropriate deals with some companies withoutothers getting upset and blowing the whistle. Thus, tobaccomanufacturers could become key agents for reducing therisks of regulatory capture; something almost inconceivablewith respect to today’s big tobacco companies. To ensurecompetition, there will need to be rules governing maximummarket share to keep sufficient companies in the market, atleast in jurisdictions big enough to sustain multiple providers.

The other main potential for corruption is from withingovernment. It is not too hard to imagine a government indire financial straits looking at tobacco as a means of raisingrevenue. In the short term, there is a common interest inprice rises for tobacco products as they will reduce demandwhile increasing total revenue to government. However, ifthere is pressure to increase demand, which may occur ifconsumption falls too much, how would it be resisted?Separation of the main revenue related decision making fromthe TPA is an essential part of the solution to maximisescrutiny of decisions taken. The TPA would need to be set upin such a way that the powers that regulate it areadministered by the Health Department (or equivalent) anda different government department (for example, Treasury)collects taxation (or equivalent) revenue. The Treasury wouldset tax rates after consultation with the TPA and ideallywould have the power, on the recommendation of the TPA, toset differential taxes for products of different presumed harmprofiles. The TPA, itself, would probably be created as a non-profit (or non-profit maximising) organization, raising itsoperating costs from the business (although alternatively itcould be given a budget from government revenues). Thisseparates the revenue raising capacity from other functionsdesigned primarily to reduce harm. To bolster further theinterest of the TPA in public health, it could be givenresponsibilities for some cessation and prevention pro-grammes. Staff working in these programmes would bemotivated to resist any efforts to undermine the agency’sintegrity. Taken together, this structure should create abalance that minimises the risk of regulatory capture bymanufacturers or corruption by revenue raising interestswithin governments.

One final guard against corruption could be benchmarkingagainst the performance of TPAs in other jurisdictions. Inlarge countries, the model could be adopted at a state level,with between-state competition driving improved perfor-mance.

External to the TPA is the problem of preventing anysubstantial illicit market (largely due to smuggling). Illicitmarkets develop where there is money to be made. Anysystem that either acts to drive up price relative to production(for example, taxes), and/or mandates changes to cigarettemanufacture that make them less appealing, could makecheaper and/or more appealing illicit products attractive. Ifstates, or countries with permeable borders, acted alone, theywould be restricted in the extent of changes they could makebecause of the difficulty of preventing smuggling if theymoved too far ahead of consumer desires. This is a problemfor any system, not just an RMM. Change will be limitedwhere there is capacity to import product in large quantitiesfrom outside the area controlled by the TPA. However, itwould still be possible to implement the basic apparatus. Thiscan be seen by the lack of problems associated with stateliquor distributors in some US states operating alongsideopen markets in neighbouring states. These work well, but

often do little more than reduce the density of retail outlets.To optimise the potential of the model to move towardsproducing the least attractive and/or least harmful productspossible would require it being adopted within a set ofjurisdictions which could control smuggling.

A final challenge for the form of regulated market arguedfor here is to ensure that retailers do not become the de factomarketers. Small retailers have little capacity to add value orotherwise grow the market. Within their locality they can,but as the distributors will be agents of the TPA, there is somescrutiny to prevent these sorts of practices. Of more concernwould be if one retailer became big enough to make it worthits while to bend or break laws to try to grow the market. Thisrisk can be managed, perhaps by use of anti-monopolieslegislation.

MERITS OF THE REGULATED MARKET MODELIn assessing the relative merits of the RMM, it is useful tocompare it with plausible alternative models. We initiallycanvassed three other possibilities: conventional regulation, amonopoly, and a laissez-faire system relying entirely oninformed consumers. It immediately became apparent thatthe laissez-faire model was not viable; government clearlyneed to be involved in product information (this is acknowl-edged in the FCTC) and there is insufficient consumersovereignty for users to make truly informed decisions. Also,we do not believe that a monopoly is viable; however, it isincluded in the comparisons in table 1, mainly to showreaders that the RMM is fundamentally different to either aconventional regulatory authority or a government mono-poly, even with both set up with the same goals as a RMM.

The analysis summarised in table 1 suggests that while aconventional regulator is as able to mandate less harmfulproducts as an RMM, it is less clear how it could activelyencourage new innovation. Further, an RMM appears toenable effective controls over promotion by removingincentives to promote, something that does not seempossible while manufacturers compete to sell to endconsumers.

Under the RMM, the role of the regulator is made easierbecause most of the work a regulator needs to do under thefree enterprise system is done by the special customer-supplier relationship between the TPA and the manufacturersor their import agents. The role of regulation is thus littlemore than the rules setting up the TPA, prohibiting otherentities engaging in marketing of tobacco products outside ofmechanisms the TPA might permit, and preventing collusionthat could undermine the intent of the system. What wouldnormally be complex sets of rules about what is allowed inparticular products and what marketing activities are and arenot permissible, is simplified to flexible contractual arrange-ments, or is done by an agency without strong incentives todistort communication. For the alternative of a conventionalregulatory approach to work effectively, it will requiresufficient powers and flexibility to do its job properly andresources to support and utilise the necessary expertise. Theintrinsically antagonistic relationship it has with manufac-turers and marketers makes doing this task difficult, and it islikely to be more expensive than doing the same task withinan agency that has a more cooperative relationship withmanufacturers.

For countries with a current monopoly or near monopoly,the RMM has considerable extra attraction as it probablyovercomes World Trade Organization problems with mono-polies, while maintaining government control over what isavailable and how it is promoted. It provides a clearalternative to the privatisations that governments areengaged in or are contemplating in places like Japan andThailand. As Mark Levin notes (personal communication,






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eco

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nies

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and

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cent

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ovid

eun

solic

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info

rmat

ion

asth

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Ais

thei

rcu

stom

er.

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petit

ion

inpr

oduc

ing

prod

ucts

for

the

TPA

will

min

imis

eri

skof

regu

lato

ryca

ptur

eby

cart

els.

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ratio

nof

reve

nue

rais

ing

from

regu

lato

ryov

ersi

ght,

the

latte

rin

heal

thag

ency

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s,w

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ise

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venu

eas

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s.Tr

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ould

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than

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gula

tion,

and

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leit

may

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ore

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cult

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onop

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illbe

anu

mbe

rof

affe

cted

part

ies

dem

andi

ngit.

380 Borland





July 2003), we should not sit by and let tobacco companies betaken over by interests with no potential interest in publichealth.

The RMM provides improved capacity to minimise theimage creation associated with marketing and capacity tomove to reverse some of the engineering that has maskedinherent toxicity. It should act to reduce demand. The modelcould also allow or encourage retail outlets to promotecessation. While in principle this can be done under thecurrent system, many would be extremely worried about thetobacco industry systematically undermining the effort, whilebeing seen to cooperate. The model can also constrain supply,particularly by restricting more harmful products and, if itwished to do so, by gradually restricting the number of retailoutlets it contracted to sell its products.

BARRIERS TO ADOPTIONThere is little doubt that the initial reaction of most people tothe question of whether an RMM is politically feasible will be‘‘No’’. Part of the reason for this is the distrust of new ideas.It is more useful to think about what might be morepersistent barriers that may remain when the novelty wearsoff.

For an RMM to become a reality, it needs to beimplemented through national laws in ways that areconsistent with international law. The FCTC is creatingunprecedented international focus on tobacco control andforcing all-of-government responses, both of which should behelpful in moving towards the kind of comprehensivesolution the model represents. However, this type of controlover the tobacco market was not considered in the negotia-tion of the convention, because the ideas are too new. It willbe important to ensure that the absence from the conventionof models like the RMM is not used as an excuse to avoidconsidering new ideas. Indeed, the very fact of the FCTCdemonstrates the need for concerted international action todo all that is practical to reduce the death and disease tobaccouse causes.

The other relevant international law is that governing theWorld Trade Organization (particularly the TRIPS agreementwhich deals with intellectual property and trade marks).There appears to be no basic prohibition of monopsonies aslong as they do not discriminate between national and non-national suppliers in their purchasing of product. The goal oftruly generic packaging could run into problem withagreements like TRIPS, particularly if it were to be donewithout compensation, but this is not clear. More work isneeded here, but it needs to be remembered that tobaccorelated trademarks have monetary value because they addconsumer value to these inherently harmful products.Removal of trademarks may be more a problem for somecountries than others. In some, it may be enough to maketobacco a controlled substance,21 moving it outside ordinarycommerce. Such legislation would only allow consumerpossession of tobacco products marketed by the TPA.Alternative pathways include forfeiture of trademarks eithervoluntarily, as part of protection against future liability forproducing harmful products, or forcefully through successfullitigation against such practices.

Another major potential barrier is that governments maysee a risk of becoming associated with the residual tobaccoproblem. This may cause problems as the community comesto forget the benefits that change has provided. In setting upthe system, it will be important that there are symbolic aswell as practical aspects to the legislation defining tobaccouse as socially problematic. The symbolism of making tobaccoa controlled substance and constraining its availabilityshould help to send signals of governmental disapproval,

minimising the risk of it being seen to promote somethingthat is socially undesirable.

A final barrier is to convince people that the problem is bigenough to warrant such a solution. There is no doubt thatvested interests who profit from the current system willoppose the adoption of an RMM and they may gain supportfrom those who are naturally suspicious of governmentinvolvement in either commerce and/or in influencingpersonal choices. For countries like Australia, with strongcommitments to free markets, there are challenges ofrethinking how the model actually fits within a system thatis designed to encourage competition and innovation.However, there are currently major challenges in justifyingthe preservation of a system that grows demand for productssociety has decided are harmful.

To get decision makers to focus on the importance of suchcomprehensive change may require a crisis. This could comefrom the courts. It is possible that successful litigation, eithercivil or criminal,8 could effectively outlaw the current systemof for-profit companies marketing tobacco products toconsumers. In such a context, governments would be forcedto act quickly. An RMM could be an attractive solution.

CONCLUSIONSThe idea for an RMM arose as a response to the proliferationof new potentially harm reduced tobacco products. It wasdesigned to create a context whereby the forces of competi-tion could be marshalled in the interests of reducing theharmfulness of tobacco products. It is also an extremelyeffective system for minimising commercial incentives to usetobacco products, and could be used solely for that purpose.The RMM may be the most practical way of ensuring theelimination of inappropriate promotion. These are potentreasons to consider its adoption.

It is important to realise that the version of the RMMarticulated here is not the entire solution. There will alsoneed to be controls over retailing, ongoing programmes forprevention and cessation, and more extensive controls overwhen and where tobacco products are used. At least some ofthese tasks will be made easier when the powerful forces inthe tobacco industry that are systematically underminingthese efforts are removed. An RMM may mean we will haveto spend less in these other areas to achieve the same result.

Tobacco control needs strategies to minimise forces thatencourage the uptake of inherently harmful products andcapacity to allow smokers who are currently unwilling orunable to quit to switch to less harmful variants, withoutdiscouraging their eventual cessation, or of encouraging newusers. The RMM appears to achieve these goals. We are notaware of any alternative proposal that is likely to be asefficient or effective. Tobacco use causes far too much deathand disease for any but the most effective strategy to becredible. Research and analysis is needed to test the claimsmade in this paper. Governments should seriously considerits adoption, or at the very least add it to the mix of strategiesthey consider when they take the (what seems to us asinevitable) steps towards more comprehensive control of allaspects of the tobacco market.

ACKNOWLEDGEMENTSThe project on which this paper is based is funded by the VictorianHealth Promotion Foundation (VicHealth) and The Cancer CouncilVictoria. The core of the ideas within it come from work done withJonathan Liberman, Michelle Scollo, and Kathy Barnsley. These ideashave been refined by discussions and correspondence with manyindividuals who have contributed comments to presentation of theideas developed in the paper. Also special thanks to JonathanLiberman for thoughtful comments on this manuscript.






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The lighter side ...................................................................................

EI’m Going Out for a Smoke. By Walt Handelsman. Copyright 2003 Tribune Media Services, Inc. All RightsReserved. Reprinted with permission.

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