An empirical analysis of cigarette addiction

The effect of cigarette prices on cigarette use was studied in an assessment of a model of rational addiction. The monopoly power of cigarette companies and the addictive nature of smoking explain why cigarette makers raised their prices during the 1980s because they expected smoking to decline. The price increase would raise short-term profits if the prices were set below the point of profit maximization as a way of increasing demand in the future due to addiction in the present.