Coupons and advertising in markets for addictive goods: do cigarette manufacturers react to known future tax increases?
We develop and test a pricing model for a monopolist that sells an addictive good. The model illustrates the conditions under which a monopolist lowers the price he charges youth when a future tax is imposed. Using household survey data, we investigate whether individuals use "cents-off" coupons in a way consistent with the price discrimination implied by the model. We find evidence that all smokers, not just the young, are more likely to use coupons prior to a tax increase if they are exposed to more advertising. With our data we cannot test whether cigarette manufacturers selectively offer youth price discounts in other ways.
Lillard
Dean R
DR
Department of Policy Analysis and Management, Cornell University, Ithaca, NY, USA.
Sfekas
Andrew
A
D000328:Adult; D000329:Advertising; D000465:Algorithms; D004465:Economic Competition / Q000191:economics*; D005260:Female; D006801:Humans; D008297:Male; D008875:Middle Aged; D012907:Smoking / Q000191:economics* / Q000453:epidemiology; D013660:Taxes / Q000331:legislation & jurisprudence*; D019460:Tobacco Industry / Q000458:organization & administration*; D014481:United States / Q000453:epidemiology