TOBACCO: PREDATION AND PERSISTENT MARKET POWER
Walter Adams and James W. Brock
More than eighty years ago, in 1911, the three largest cigarette producers controlled 80 percent of the U.S. market.1 A decade and a half later, in 1925, the top four firms accounted for 91 percent of the market.2 Four decades later, in 1949, the four largest firms accounted for 87 percent of the field.3 Seventy years later, in 1980, the four firms continued to control 88 percent of national cigarette sales.4 Today, the four largest firms still collectively dominate the field, accounting for approximately 98 percent of the American market.5
This entrenched market dominance raises a number of questions: How was such market power originally attained? How has it defended and sustained itself? How has it done so despite three major challenges under the nation's antitrust laws, including two convictions? And what public policy lessons are suggested by this persistent market power? It is to these questions that we turn.
In 1889, the Durham, North Carolina, firm of Washington Duke & Sons was a relatively small concern in a fiercely competitive field. In the major tobacco product lines of that earlier era, it accounted for less than 8 percent of smoking tobacco, a third of the nation's cigarette output, and produced no plug or snuff tobacco products.6 Twenty years later, the structural milieu had radically changed. The American Tobacco Company forged by one of the Duke sons, James, was a colossus standing astride all aspects of the industry: by 1910, Duke's Tobacco Trust commanded 76 percent of smoking tobacco production, 80 percent of fine-