AN EXTERNALITY’S SHIFT TOWARDS NASH EQUILIBRIUM: ANALYSIS OF USA TOBACCO PRODUCTS ADVERTISING BAN

Abstract

This paper explores the effects of the U.S. government’s ban on tobacco product advertising on the profits of the tobacco industry and the overall demand for tobacco products. Utilizing a game-theoretic framework, the study considers historical collusion among leading tobacco companies, as well as the environmental and health consequences of smoking. The paper begins by emphasizing the substantial size and economic significance of the global tobacco market, noting that certain tobacco-producing countries have derived positive economic benefits from the industry. However, recent literature also presents evidence that challenges this view. Next, the analysis examines theoretical frameworks, particularly focusing on Adam Smith’s ideas about self-interest and the principles of game theory. It discusses how individual self-interest can produce either beneficial or harmful outcomes for society, depending on the circumstances. The game theory approach is highlighted as a method for analyzing the strategic interactions among rational actors. Norover, a case study of Eastern Company in Egypt is also included to illustrate these concepts. The primary objective of the study is to assess the impact of the advertising ban on the profitability of the tobacco industry and to evaluate the government’s effectiveness in curbing tobacco demand. Findings indicate that the advertising ban has not significantly curtailed smoking rates. The paper concludes by highlighting the intricate dynamics within the tobacco industry and the necessity for a comprehensive understanding of the economic, health, and environmental ramifications of tobacco consumption.