Table 1

How three possible systems deal with some key issues

IssueConventional regulationGovernment monopolyRegulated market model
A. Product composition
Ensure that products meet the standards that have been establishedRequires regulations that specify the standards. This is something that they can do well, but it also requires monitoring, which can be squeezed in times of budgetary scarcity. Typically can only regulate what is, so limited in capacity to regulate new innovations. Will need to be strong, flexible and vigilant to workThe government simply instructs the production units as to what they can and cannot do. There is no necessary mechanism of review. The process can vary from the soundly based (good) to the capricious (dangerous)The TPA both specifies minimum standards in tenders for products and rewards companies that exceed (better) those standards with increased market share. The TPA will need independent capacity to test products, but is likely to get good quality information from its suppliers as it is their customer. There is a risk a monopolistic distributor will make poor choices, but international comparison should show this up
Encourage the creation of genuinely harm reduced productsHas innovative potential of free enterprise, but requires capacity to make claims if it is to encourage production of products that better the minimum standardsMonopolies typically are poor at innovationCan encourage product innovation to reduce potential harm, through capacity to offer increased market share to such products. Does not require capacity to make harm reduction claims. Contracts form a more flexible base for product innovation than regulations
Allow moves to less intrinsically attractive productsVery difficult to achieve. Companies use taste and other differences to compete and will strongly contest any such changesCan be readily achieved if the will is there, but limited by consumer toleranceCan be achieved, but limited by consumer tolerance
B. Communication and marketing
Ensure balanced communication about the benefits and harms of useStrong incentives for company communication to understate harms. Governments have taken role in mandating health warnings and in some cases funding anti-tobacco advertising. Governments will need to play an expanded role in mandating provision of basic information about harms as the companies can not or will not do this. While it is profitable to do so, there will be pressure to avoid or even break lawsIn principle, less problem with incentives to distort communication, but unless the monopoly has a harm reduction charter, no real incentive to ensure balanceCentral to its charter, so should be straight forward. Can effectively remove incentives for tobacco companies to promote to consumers, by selling products under TPA livery. Requirements of transparency and public involvement should produce conditions to get the balance right
Controls to prevent pricing being used to attract new marketsPrice controls work, but they require constant vigilance, thus it is costly to ensure they operate where incentives for violation existSimple in principle, but incentives to break rules remainShould operate smoothly. TPA has no incentive, but incentives for retailers remain as for other systems, but probably easier to control as contractual relationships with TPA provides greater oversight
Truly generic packagingLimited as companies must be able to retain some identifiable link with their products, links that can be used for marketingPossible as all brands owned by monopolyPossible as all brands can be owned by TPA. Part of the appeal of the model is that it encourages such innovations
Elimination of capacity to add value to tobacco products through modern marketing techniquesIncentives remain for indirect promotion providing it can be linked to company products. Prohibiting indirect promotion of products is extremely difficultShould cause no problems, as could be prohibited and even if incentives remained, monopolies tend to be less creative in their marketingSuch activities would be incompatible with the charter of the TPA, and there is little incentive for violations. There is also little incentive for any such promotion to consumers by manufacturers if tobacco products are sold with TPA brands
C. System integrity
Legal integrityWill require making industry activity that meets regulator requirements legal where there currently may be questionsNot permissible under World Trade Organization conventions, thus not viable for WTO memberTPA would be acting legally while it operated within its charter. It would require manufacturer’s activity to be made legal if they met TPA and other requirements
Maintaining the integrity of the system—incentives to comply with the spirit as well as letter of the lawRole of regulator will be complex as companies have incentives to bypass regulator and keep information secret where possible. Will require strong and vigilant regulators with strong values of independence. Strong enforcement of laws will be needed to ensure no commercially motivated avoidance or violation of the rules. Has somewhat greater intrinsic limits on potential transparency because of commercial in-confidence requirements. As there is likely to be only a small number of companies in the market, regulatory capture remains a problemFew incentives exist for a monopoly to impose onerous restrictions on the types of products that they can produce. Oversight will be needed by government agency with interest in public health. Can be totally transparent, but rarely do monopolies feel the need to be. Long history of monopolies being corrupted by desire for money and/or powerControl of product composition and other issues is easier than in the open market because companies have less incentive to hide information from TPA and often have incentives to provide unsolicited information as the TPA is their customer. Competition in producing products for the TPA will minimise risk of regulatory capture by cartels. Separation of revenue raising from regulatory oversight, the latter in health agency hands, will minimise over emphasis of revenue aspects. Transparency should be easier than under regulation, and while it may be more difficult in principle than for a monopoly, there will be a number of affected parties demanding it.