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The Australian Parliament has passed legislation compelling tobacco products to be sold in “plain packaging.” This article reviews this legislation and its likely effects on prices, market structure in the tobacco industry and on smoking behaviour. Industry changes following two previous sets of restrictions on advertising are examined for relevant empirical evidence. Without offsetting tax increases, the legislation will plausibly reduce prices but significant entry into the industry and greater consumption of counterfeit/illegal cigarettes are unlikely. Provided that tax increases offset any induced fall in prices, plain packaging will reduce cigarette consumption.

In this paper we empirically analyse two counterfactual situations facing an anti-trust authority following the merger of two of the largest international cigarette companies. First we estimate a nested logit model of demand for cigarettes. The implied elasticity of demand for smoking and implied marginal costs are both broadly consistent with the limited independent estimates available. We then use the model to simulate the proposed merger and the partial divestiture that was accepted by the Australian anti-trust authority. A comparison of the relative price changes predicted by the divestiture simulation with the actual post-divestiture price changes shows the model successfully anticipated the behaviour of the divested brands.This suggests structural econometric analysis using a nested logit may be usefully utilised by anti-trust authorities to assess the welfare implications of proposed mergers and partial divestitures.