[maest]

Incidentally, this is also why tobacco manufacturers don't really mind high cigarette taxes: it puts a higher floor on the cost of a pack of cigarettes, which means the overall profit is larger.

[gruez]

Why does it set a higher floor? The tax goes to the government, the tobacco company doesn't get to keep it.

[maest]

I don't understand your objection. The cost includes all tax.

[gruez]

Suppose the following price breakdown for a pack of cigarettes:

    cost: $3
    profit: $1
    tax: $1
    total price: $5

The government decides to increase the tax by $1, now it's

    cost: $3
    profit: $1
    tax: $2
    total price: $6

As you can see, the total price went up $1, but the tobacco company's per-unit profit is the same. They can increase the price by more than the tax (eg. hiking the price by $1.5 rather than $1), but that's equivalent to hiking the price $0.5 without an associated tax increase, which they can do at any time.

[random314]

Let's say a competitor shows up who manufactures cigarettes at $1.

At a lower tax rate of $1 his cigarette is $3 vs $5.

But at a higher tax rate of $3, it is a $5 vs $7 customer price.

In absolute terms the price difference is the same. However, consumers think in terms of percentages for cheaper items.

[kazinator]

Any added margin that makes your product more expensive, that does not go into your pocket, is bad for business.

It's basically a form of someone stealing from you.

The user was willing to pay $4.50, all of which you could have had, but $0.50 went to a parasitic third party.

We can look at it from the point of view of the transaction between the buyer and seller being arbitrarily robbed of $0.50.

We can also look at it from the POV of the supply-demand curve: fewer units are sold of the more expensive product.

Both these effects hit you: you're selling less because it's more expensive, without you getting any more of the extra per-unit revenue.

[rayiner]

Ask any industry if they want a fat tax on their products to take advantage of the effect you describe.

[dctoedt]

Don't tax you, don't tax me — tax that fellow behind the tree. --- Sen. Russell B. Long (among others) [0]

[0] https://quoteinvestigator.com/2014/04/04/tax-tree/

[lotsofpulp]

Only if the higher profit from higher sales price makes up for the possible decrease in sales from higher price.