The twelve year return-on-equity data for the Tobacco Industry of 27.9% is substantially above the all-industry average of 14.1% given in the Business Week data. Examining Porters five forces reveals the keys to the Tobacco industries superior profit performance.
The price customers are willing to pay for a product depends, in part, on the availability of substitutes. The absence of close substitutes in the case of cigarettes means that consumers are comparatively insensitive to price increases. This makes price demand for tobacco inelastic with respect to price. …
