nader/weissman on tobacco co. price fixing

[Robert Weissman <rob@essential.org>]

This is a letter Ralph Nader and I sent today to Joel Klein on
industry-wide tobacco price increases announced earlier this week. If
anyone would like to discuss this, I can be reached at 202-387-8030.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org

Ralph Nader
P.O. Box 19312
Washington, D.C.  20036

Robert Weissman
Essential Action
P.O. Box 19405
Washington, D.C.  20036

September 1, 1999

Assistant Attorney General Joel Klein
U.S. Department of Justice
950 Pennsylvania Avenue, NW
Washington, D.C.  20530

Dear Assistant Attorney General Klein:

Yesterday's newspapers reported yet another instance of lock-step price
increases by the tobacco industry. An 18-cent-per-pack price increase by
Philip Morris was immediately followed by identical price increases by
R.J. Reynolds, Brown & Williamson and Lorillard.

We are writing for the third time to request that the Justice Department
launch an investigation into price-fixing by the tobacco companies. (We
made similar requests following a five-cent-a-pack increase in May 1998,
and a seven-cent-a-pack increase in August 1997.)

It is true that the companies face similar cost increases, including a
federal excise tax increase starting January 1 and legal settlement
obligations. However, we believe the most likely explanation for
simultaneous, identical price increases -- especially a clear pattern of
simultaneous, identical price increases -- is illegal collusive activity.

Whatever the merits of cigarette price increases, they should not take the
form of company profiteering, nor come at the expense of adherence to our
nation's antitrust laws. The pattern of simultaneous, identical industry
price increases mocks the growing efforts at the Justice Department to
crack down on other illegal price-fixing activities.

Moreover, although price increases work to cut cigarette consumption and
are therefore desirable from a public health standpoint, the industry's
pricing practices appear designed to limit the public health benefits.
What appears to be coordinated action gives the companies more latitude to
raise prices slowly, with the price increase followed by discounts that
are slowly withdrawn. "Consumers will only gradually feel the price
increase," leading industry analyst Martin Feldman of Salomon Smith Barney
told the Wall Street Journal.

Cigarette consumption is less affected by the gradual price increases than
it would be by sharper increases of the same amount. Such massaging of
market prices would be much more difficult in a market operating
competitively.

Accordingly, we again urge you to undertake an investigation into whether
the tobacco companies have engaged in criminal price-fixing.

Thank you for your attention to these matters. We look forward to your
response.

Sincerely,

Ralph Nader				Robert Weissman

P.S. Have you ever read the book Discretionary Justice by Professor
Kenneth Culp Davis of administrative law fame? If not, given your
position, you'll never regret reading it.