In fact, Australia is first country in the world to implement plain packaging. They use health warning and gruesome pictures of disease to replace the brand imagery and promotional text of standard packaging (Ma 2011). This packaging emphasizes the damage of tobacco therefore the demand of tobacco will decrease by reducing attractiveness of tobacco on consumer (Department of Health and Ageing 2011). However the plain policy is not effective as expect because according to research it only has influence on potential consumers especially on teenagers. In generally, the majority of smokers will become regular smoker after first try smoking (Schmidt 2013), the health warning could lead less teenager’s desire to attempt it. However due to the cigarette is necessary good for the addict, the packaging would not change the existing demand of tobacco. Therefore, there will only have slight affect of demand for cigarette in long run. In contrast, plain packaging would increase consumption by leading lower price of tobacco from two reasons. Firstly, increasing of illegal tobacco lead to price cut of tobacco. Because of the branded tobacco is expensive than unbranded cigarettes and counterfeit cigarettes, the market share of illegal had already growing rapidly from 6 per cent in 2007 to 15.9 per cent in 2010 (Deloitte 2011). After implement of plain packaging, the forgery-proof of cigarette is reduce, a larger amount of counterfeit cigarette are showing in the market, it cause rapidly growing in consumption on those illegal cigarettes. As a result, the rise of supply on tobacco will lead a new equilibrium point with lower price (Clarke and Prentice 2012).
Secondly, lower price of tobacco is also resulted from the competition on branded tobacco. Owing to the distinctive packaging removed, differentiation and identification between products declined, it will cause a higher cross-price demand elasticity that means slighter decreasing of substitutes’ price would reduce large sales of the product (Rechey, Spiegelhalter and Marteau 2013). In this situation, the tobacco company will reduce price to decrease the influence on competition between substitutes. According the law of demand, lower price of tobacco will raise the demand of cigarette and this proportion of will be larger than the scale of decrease of demand on potential consumers, it is enough to cover the decline of consumption. Overall, therefore, plain policy is not effective as expect.