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Abstract Introduction There is an agreement in the literature that tobacco price elasticity is around -0.4 for given location. Furthermore, works only focus separately, on the temporal dimension or the spatial dimension, however, there are studies that show the existence of spillovers between different geographical areas due to the spatial dependence in tobacco consumption. The novelty of this study is the measurement of the effect that neighbouring regions have on the price elasticity of cigarettes. Methods This study simultaneously analysed, first, a dynamic spatial model used to measure the price elasticity of cigarettes in the short term and long term of the 47 provinces that make up the Spanish territory, detailing the influence of neighbours. Second, given the spatial arrangement of the elasticities observed in the provinces, we can detect behaviours typical of large-scale illicit trade and cross-border purchasing since geographical location can be an important factor in smuggling, and politicians should take this into account when making price policies. Results Results reveals that the consumption of the regions is influenced by the consumption of the neighbouring regions in the same period. The price elasticity of cigarettes in the long term exceeds in many cases, in absolute value, unity. This result is novel because tobacco has historically been treated as an inelastic demand good. Finally, we found that the regions that are most sensitive to price are those bordering France and Gibraltar or tourist regions, demonstrating the effect that smuggling has on the behaviour of the regions. Conclusions These results are important because the price in Spain is set by the central government and fiscal policies regarding the price of tobacco can have different effects in different regions. This study has shown that the consumption of cigarettes is influenced by the neighbouring regions and also measured different sensitivities for each region. Regional cooperation in tobacco control policies may have better effects than the elaborated policies based on historical information. Implications Policymakers should consider that tobacco could be an inelastic good in the long term and that cooperation between countries in terms of price differential should be taken to avoid tobacco smuggling. The allocation of resources to control smoking should consider the special dependence shown in this report. Also, academics should account for spatial dependence to measure tobacco consumption instead of temporal analysis.

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This paper outlines possible useful marketing strategies for companies to develop in a regulated market. The empirical analysis aims to highlight whether companies can use marketing strategies to create competitive advantages and scale positions in sales leadership once regulation policies are introduced. To this end, we apply two econometric approaches to sales variables for 138 best-selling cigarette brands: the Bass Model (1969) to estimate the parameters that determine the way clients adopt, and the methodology proposed by Hartigan and Wong (1979) for a further cluster analysis that groups brands. The empirical results suggest that restrictions on demand introduced to the Spanish tobacco market during the years 2005 and 2006, have generated a new scenario in which innovation parameters have no effect on the process of adoption. Therefore, the imitation coefficient is the parameter which makes discrimination between brands possible, which demonstrates the existence of heterogeneity among brands based only on recommendation. The results show the inability of direct marketing strategies to create advantages and scale positions in sales leadership after the introduction of regulation policies, however companies have other marketing options such as imitation among clients and these have proven to be effective since imitation shows heterogeneous behaviour among brands across the diffusion process. This has implications that should be taken into account in markets which are on the verge of being regulated, specifically the modification of marketing strategies if the intention is to lead and scale position in a regulated market. In particular, in the case of Spain, policymakers must acknowledge that the measures implemented in law 28/2005 have had an effect on marketing strategies by cancelling, in practical terms, the diffusion of brands based on innovation and homogenizing the diffusion process based on direct marketing.