Power Play 1: RJR vs. Liggett Group
Power Play 2: The Firms vs. The Distributors

The Situation:

Under R.J. Reynolds' "Every Day Low Pricing" system, the company pays retailers who agree to sell RJR cigarettes at a lower price than competing brands.
Rather than selling RJR cigarettes for less, the retailers have been selling the competing brands for more.
On March 1, 2000, Liggett Group Inc. filed suit against RJR, arguing that RJR's practices violate the Sherman and Clayton antitrust acts.  Liggett claims to have lost sales as a result of RJR's arrangements.

The Power Demonstrated:

Liggett's situation is representative of the substantial imbalance of power in the tobacco industry in favor of the larger companies.  Whereas Liggett is the smallest of the major tobacco firms (at a market share of 1.5% ), R.J. Reynolds is the second largest firm in the U.S. (at a market share of 23.0%).
Companies like RJR are able to use their superior financial resources throughout the supply chain to make their smaller competitors worse off.  Ironically enough, RJR sued its tormentor Philip Morris last year for "violating antitrust laws."  Philip Morris offered incentives to retailers to exclusively display advertisements of Philip Morris brands.  RJR, the #2 tobacco company in the U.S., was one of three plaintiffs.  The other two were, not surprisingly, Brown & Williamson Corp. and Lorillard Co., the #3 and #4 U.S. tobacco companies, respectively.

The Bottom Line:

Power among tobacco companies is concentrated at the top.

Sources:
Joyner, Amy.  "RJR Sued By Liggett Over Pricing."  Greensboro News Record, Greensboro, N.C.  March 3, 2000.

Bogler, David.  "Liggett Turns Against Tobacco Rival."  The Financial Times, London.  March 3, 2000.

Power Play 2: The Firms vs. The Distributors

The Situation:

On Feb. 8, 2000, tobacco wholesalers filed a class action suit against the nation's top five tobacco companies.
The wholesalers charge that the firms have conspired to fix prices since the 1950's, causing the wholesalers hundreds of millions of dollars in losses.
The suit charges that the five firms routinely raise prices within hours and even minutes of each other, an indicator of possible price rigging.

The Power Demonstrated:

That the wholesalers filed the suit is a sign that they consider themselves damaged by the big five companies - or in other words, that the companies have used their power to benefit themselves at the expense of the wholesalers.

The Bottom Line:

Power in the tobacco industry lies in the hands of the tobacco companies.

The X-factor:

Whether the wholesalers actually win will determine where the balance of power shifts next.  If they do, the victory will represent a huge loss to the tobacco companies - a far greater loss than the companies would have incurred had they not overcharged.

Sources:
Grimaldi, James.  "Tobacco Companies Face New Lawsuits; Class Action to Allege Price Fixing." The Washington Post, Washington, D.C.  Feb. 8, 2000.

"Tobacco Companies Are Sued By Distributors Over Pricing."  The New York Times, New York.  Feb. 9, 2000.