Lifestyle Economics Blog

The e-cigarette market in Britain has the closest thing to perfect competition that you will see in the real world. Perfect competition is a theoretical economic model but, like most economic models, it is a useful one. In a market with perfect competition there are a large number of sellers, no barriers to entry, and a largely homogenous range of products. As a user of a second generation e-cigarette, that is pretty much what I see in the marketplace. I live in a fairly small place in Sussex—a big village, really—which has an independent e-cigarette shop and at least a couple of other shops that sell second generation e-cigarettes as part of their business.

Like many thousands of other outlets nationwide, these retailers are buying their gear from China and rebadging it to various degrees. There is a huge range of fluid, but when it comes to the hardware I can buy a battery from the specialist e-cigarette boutique and it will work with the atomiser I bought from the cornershop. It is essentially all the same and anyone can import and sell it.

If you have a perfectly competitive market, with no barriers to entry, lots of sellers and homogenous products, an economist would expect to see lower prices and greater innovation as competitors strive to be the top dog. That is exactly what has happened in the e-cigarette market. It has been to the benefit of consumers.

Some Marxists argue that industry is all about capital and that the big players come in, push out the competition and soak up excess profits. Some businesses do indeed hope to do that—and governments on left and right help them—but free marketeers say that it is only through government action that such oligopolies can be formed. We free market libertarians believe that it is regulation that pushes up prices, stifles innovation and allows big business to prosper at the expense of small businesses. The price is ultimately paid by the consumer, whether as a financial cost or a welfare cost.

The e-cigarette market in Britain is a fine example of the free market in action, not only giving people what they want but also benefitting their health. Anyone can get into it and, as a result, there is a vast array of retailers and manufacturers fighting on a level playing field to produce the best product at the best price. It's not quite perfect competition, but it's not far off and so there is an incredible amount of innovation and prices are extremely—what's the word?—competitive.

In the last couple of years, however, governments around the world have witnessed the emergence of a flourishing e-cigarette industry that offers smokers a much safer alternative to cigarettes and have decided, in varying degrees, that it needs to be crushed by regulation. Any vaper that has watched in horror as the EU, the MHRA, the WHO, the BMA and all the other joyless acronyms have tried to regulate e-cigarettes into the dust must surely have learnt a lesson about the joys of laissez-faire and the horrors of big government. Even if we leave aside the fact that it was the socialist parties in the European Parliament that were most keen to ban e-cigarettes, there must be something about this debacle that makes left-leaning punters see some wisdom in the free market.

No matter how 'light touch' the EU and MHRA regulations prove to be, we will look back on the first half of this decade as the golden age of vaping. Not because technology and ingenuity will come to a halt in 2016, but because someone has said the nine most terrifying words in the English language: "I'm from the government and I'm here to help" (h/t Ronald Reagan).

Being in favour of the free market doesn't necessarily make you a libertarian, of course (the Conservative and Republican parties have given us ample proof of that over the years). As a vaper, it will be necessary for you to step into any bar, restaurant or office in the growing number of places that have banned the use of e-cigarettes by law before those libertarian muscles really begin to flex. A park would be good enough in New York City.

Vapers have more reason than most to appreciate the magic of a loosely regulated free market because they have been lucky enough to see one appear before their very eyes and now have the prospect of seeing it disappear before their very eyes. This is how free market libertarians are made; when the government rolls its tanks onto someone's lawn uninvited.

 

You can download my IEA paper about e-cigarettes and tobacco harm reduction: Free Market Solutions in Health: The Case of Nicotine.

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