Demand uncertainty and foreign trade in the UK tobacco industry

The concern about the potential health harzards of various tobacco products in the UK has led many tobacco companies to exploit markets in underdeveloped countries. These markets are relatively safe since the health risks of tobacco are not yet fully known. The possibility, therefore, arises that domestic producers might exploit certain markets to provide a form of profit insurance, exporting surpluses when domestic demand is unexpectedly low. This study concentrates on the UK cigarette industry. However, similar analysis could be performed for any uncertain market where a certain alternative exists that can be exploited at relatively low cost.