The Counterintuitive Economics of Smoking
When lots of people smoked, there were many "price-elastic" consumers.
A $100 investment in American tobacco companies at the beginning of January 2024 would now be worth $165, outperforming the tech-heavy Nasdaq index.
The share-price boom reflects a strange economic phenomenon, with the operating margin on a cigarette sold in America growing from about 50% to about 60% in recent years.
- Cigarette- and cigar-makers are expected to make $22bn of operating profit in the world's largest economy this year.
- The number of American adult smokers has fallen by 20m in the past decade.
- Cigarette sales have fallen by more than a third in the same period.
Industry insiders expect the decline to be even steeper over the next decade, defying the usual trend of an industry suffering when customers vanish.
Normally, when customers vanish, an industry suffers: just look at Blockbuster or local newspapers.
Author's summary: Smoking industry profits despite declining sales.
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