The price customers are willing to pay for a product depends, in part, on the availability of substitutes. The absence of close substitutes in the case of cigarettes means that consumers are comparatively insensitive to price increases. This makes demand for tobacco inelastic with respect to price. The buyer's propensity to substitute cigarettes for another product is largely dependent on their price- performance characteristics. The needs being filled by cigarettes are very complex.
Cigarette companies measure average per cigarette yields of nicotine by following standardized machine testing methods. These machine methods were never intended to reflect what and how smokers actually inhale. The method proves that no tests can precisely duplicate conditions of actual human smoking and, within fairly wide limits, no one method can be said to be either 'right' or 'wrong'
Philip Morris USA (PMUSA) frequently describes cigarette brands using terms such as "full flavor, medium, mild, light, and ultra light."
Smokers have varying preferences; PM USA offers products with differing yields of nicotine, as measured by machine methods. They believe that it is appropriate to contribute to differentiate their brands on this basis that descriptors such as lights, ultra lights, medium, and mild, help communicate these differences to adult smokers.
The tobacco industry has many strong competitors with varied portions of market share. As of now, the price leader is Philip Morris. When they increase prices, other brands will follow the lead to avoid price wars. Any attempt to take away market share from the leader will result in more harm than good for the lower companies with fewer shares. Philip Morris is the industry leader and is able to heavily promote and advertise a new product. Marlboro is one of the most well-known brands in the world. We could easily create a line extension...