Monthly Archives: June 2009

Do big companies like regulation?

From USA Today (“Congress sends Obama bill to regulate tobacco,” 2009-06-12, Associated Press):

Altria Group, parent company of Philip Morris USA, the nation’s largest tobacco company, issued a statement Thursday supporting the legislation and saying it approved “tough but reasonable federal regulation of tobacco products” by the FDA. Rival companies have voiced opposition, saying FDA limits on new tobacco products could lock in market shares for Philip Morris, maker of Marlboro cigarettes.

I’m no fan of cigarettes or smoking, but it seems to me that it’s not a coincidence the Altria likes this legislation while R. J. Reynolds doesn’t.

Cigarettes are probably a little like beer. Making them is easy. Mass producing them is easy. The tricky part is administrative, going through all the legal, regulatory, and tax hoops to penetrate the market. This probably explains why Budweiser is kind of bland; the same bottles are made to be sold in New York and Utah — compare the taste to a local or regional microbrewery (e.g., Brooklyn Brewery in New York or Redhook in Seattle), where the alcohol content is almost certainly higher.

Besides vice, what other industries might have this resemblance to oligopolies because of regulation? Two others I can think of right off the top of my head are automobiles and banking. Making a car isn’t easy, of course, but it got a lot harder in the 1970s or so. Expensive safety regulations, testing, and requirements that parts to be available for years after manufacture all add to the cost — and help guarantee that only a big, established company could survive in the market place. Starting a new bank is difficult, easily requiring tens of millions of dollars in starting capital. The legal and regulatory hurdles require top heavy administrative and legal overhead.

So, is it possible that by restricting vice, governments are reward vice-purveyors? What would happen if the pornography industry became more heavily regulated? When considering regulations the state is pushing, you should always try to see what corporations benefit.