The US National Tobacco Settlement: the effects of advertising and price changes on cigarette consumption

Theodore Keeler, Teh-wei Hu, Michael Ong and Hai-Yen Sung

Applied Economics, 2004, vol. 36, issue 15, 1623-1629

Abstract: This paper provides an econometric analysis of the effects of cigarette price and advertising changes stemming from the United States Tobacco Settlement of 1998. This is done by estimation of a demand function for cigarettes, based on data from both before and after the Settlement. The model is estimated using monthly time series data for the period 1990-2000. Results show that the increase in cigarette prices stemming from the Settlement reduced per capita cigarette consumption in the USA by 8.3%. However, the cigarette companies also increased advertising in the years immediately preceding and following the Settlement. This study estimates that this increased advertising partially offsets the effects of the higher prices, increasing cigarette consumption by 2.7 to 4.7%, and hence blunting the effects of the price increase by 33-57%.

Date: 2004
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DOI: 10.1080/0003684042000266829

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