MGSC05H3 Lecture Notes - Lecture 2: Passive Smoking, Tobacco Industry, Whistleblower

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Published on 21 Sep 2012
School
UTSC
Department
Management
Course
MGSC05H3
Professor
MGTC45-Lecture 2
Tobacco Companies
Philip Morris and RJR
Philip Morris was the single largest taxpayer and RJR was not far behind.
There was an issue whether the industry should be paying for the healthcare costs, whether
it should be regulated as a drug, to what extent it should be advertised
Settlement: Tobacco industry agreed to pay over 368 billion to 50 states (responsible for
health care in the United States). In 1997 the gov’t were responsible for paying the
healthcare for the most part. The gov’t were going to sue the tobacco industry so in the
settlement they were going to pay billions of dollars to settle it. They also agreed to not fight
if the FDA wanted to regulate it as a drug, to not use a cartoon characters to market their
product. What they got in return, the states would not sue Tobacco for healthcare costs and
that there would be a ban on class action lawsuits against them. Tobacco also received
certainty going forward which was important for the industry. 368 billion dollars was a lot
but they could raise the price per packet by a little over 60 cents and would recover the loss.
Demand for Tobacco doesn’t change with price, because people are addicted to it
In effect, the tobacco industry does not do badly with eliminating the cartoon characters as
this was going to be across the board (it’s a wash)
How did the deal come to an end?
The emergence of whistle-blowers (in the 90s)
There is now something that protects whistle-blowing and became a part of the culture
Easier for politicians to go after the tobacco industries and garner votes
Scientific development- in the 1960s it was revealed that people who smoked can get cancer,
not until the 1990s the second hand smoke idea came to be and become a public issue
The environment became unfavourable for the tobacco industry and their certainty is no
longer guaranteed
The attorney general in every state realized that they can sue the tobacco companies for
healthcare expenses
o Unlike individual smokers, they don’t have a choice and they have to pay the
expenses for healthcare
o Michael Moore, AG of Mississippi realized that they had a case against the Tobacco
industry
o In the mid-90s, three things happened
Whistle blowers
Second hand smoke
Awareness of a new kind of lawsuit
For the first time, a tobacco company settled to payout a class action suit instead of going to
court/ Liggett Company
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Document Summary

Philip morris was the single largest taxpayer and rjr was not far behind. There was an issue whether the industry should be paying for the healthcare costs, whether it should be regulated as a drug, to what extent it should be advertised. Settlement: tobacco industry agreed to pay over 368 billion to 50 states (responsible for health care in the united states). In 1997 the gov"t were responsible for paying the healthcare for the most part. The gov"t were going to sue the tobacco industry so in the settlement they were going to pay billions of dollars to settle it. They also agreed to not fight if the fda wanted to regulate it as a drug, to not use a cartoon characters to market their product. What they got in return, the states would not sue tobacco for healthcare costs and that there would be a ban on class action lawsuits against them.

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