Tobacco Market Pricing Strategies Ahead of Tax Adjustments: Evidence From a Unique Retail Price Survey

Ngoc-Minh Nguyen (), Manh-Duc Doan, Tuong-Vy Phan (), Huy Le Vu (), Ha-My Bui () and Anh Ngoc Nguyen ()
Additional contact information
Ngoc-Minh Nguyen: Development and Policies Research Center (DEPOCEN), Suite 305 - 307, 12 Trang Thi Street, Hoan Kiem, Hanoi
Tuong-Vy Phan: Development and Policies Research Center (DEPOCEN), Suite 305 - 307, 12 Trang Thi Street, Hoan Kiem, Hanoi
Huy Le Vu: Development and Policies Research Center (DEPOCEN), Suite 305 - 307, 12 Trang Thi Street, Hoan Kiem, Hanoi
Ha-My Bui: Development and Policies Research Center (DEPOCEN), Suite 305 - 307, 12 Trang Thi Street, Hoan Kiem, Hanoi
Anh Ngoc Nguyen: Development and Policies Research Center (DEPOCEN), Suite 305 - 307, 12 Trang Thi Street, Hoan Kiem, Hanoi

No 195, Working Papers from Development and Policies Research Center (DEPOCEN), Vietnam

Abstract: This study challenges the tobacco industry’s claim that specific excise tax increases undermine public health objectives by driving consumers to a static, cheaper illicit market. Exploiting a unique dataset of 5,366 cigarette retail price observations across Ha Noi and Ho Chi Minh City collected in February 2025, we analyze market dynamics ahead of major tax legislation. We find that the licit industry engaged in coordinated “overshifting,†raising prices by an average of 8.3%, more than double the national inflation rate, particularly in the price-sensitive economy segment. Crucially, illicit cigarette prices also rose by an average of 2,400 VND, displaying a †shadow pricing†dynamic where sellers mirrored licit trends to maximize profits rather than maintain low-price competitiveness. These findings invalidate the industry’s †price gap†argument, confirming that the market has significant capacity to absorb the proposed 5,000 VND specific tax and that policymakers should confidently implement robust, enforcement-backed tax reforms.

Keywords: Tobacco; Excise Tax; Illicit Market; Pricing Strategies; Overshifting; Vietnam (search for similar items in EconPapers)
JEL-codes: I18 K42 L13 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://depocenwp.org/modules/download/index.php?id=195 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dpc:wpaper:0195

Access Statistics for this paper

More papers in Working Papers from Development and Policies Research Center (DEPOCEN), Vietnam Contact information at EDIRC.
Bibliographic data for series maintained by Doan Quang Hung ().