Fair trade pricing laws in the United States are put in force to provide a minimum price with the goal of reducing smoking. Twenty five states, including Pennsylvania, New Jersey, New York, Minnesota, Indiana, Mississippi, South Dakota and Nebraska have fair trade laws specifically addressing cigarette sales. In addition, South Carolina, California, North Dakota, Michigan, Colorado, West Virginia and Wyoming have general fair trade laws that oversee all sales practices, including cigarettes. Laws are enacted on a state level and reflect different requirements for retailers and wholesalers in the pricing structure of cigarette sales.
Following a major settlement with states on cigarette marketing in the late 1990s, cigarette manufacturers sought other routes to ensure continued sales of their product. One of these methods is price manipulation, which involves false price discounts that are targeted toward lower-income demographics and teenagers. One form of manipulation is the perks offered to retailers by the tobacco industry to incur higher profits for the individual store owner, while providing the tobacco manufacturers in-store advertising. Some manufacturers will request price promotions where the price of a particular product will be lowered and the retailer given an allowance to offset any losses. Fair trade pricing laws ensure that regulation of the minimum price of cigarettes is taken out of the hands of commercial interests.
Indiana's Cigarette Fair Trade Act
The state of Indiana enacted the Cigarette Fair Trade Act to ensure price manipulation does not occur on the distributive or retail levels. In addition to protections to uphold public welfare, the act also restricts price manipulation for the purpose “of injuring competitors or destroying or substantially lessening competition” which “is an unfair and deceptive business practice and adversely affects the collection of revenue due this state from the sale of cigarettes." Wholesalers and retailers are prohibited from selling cigarettes at less than cost and selling several packages of cigarettes at a combined price. In addition, they must be forthcoming in information on their distributor. Violation of the law can lead to substantial fines and seizure of tobacco products.
Minnesota's Unfair Cigarette Sales Act
Minnesota’s Unfair Cigarette Sales Act helps to reduce unfair trade pricing of cigarettes through requiring retailers and cost mark-ups to be at least 12.9 percent. This calculation is based on the assumption that wholesale costs make up 4.5 percent of the invoice price and retail costs account for 8 percent. The purpose of requiring a minimum mark-up is to provide guarantees that cigarette products are not being sold at below the initial cost price. Violators are penalized with fines.
The Pitfalls: Mississippi
Like Minnesota, Mississippi’s cigarette-pricing legislation establishes a minimum markup to avoid the sale of tobacco products at sharply discounted prices to generate sales. Enacted in 1954, the law has undergone renewed scrutiny recently as compliance and enforcement has become more lax. This creates a new issue for states with these laws in place since those who do not comply end up having an unfair advantage over those who do comply. Such complications highlight the need to provide proper resources and practices to enforce the laws.