Advertising Restrictions and Cigarette Smoking: Evidence From Myopic and Rational Addiction Models

Abstract

Because of the high social cost of cigarette smoking, many countries impose advertising restrictions to reduce cigarette consumption. Yet previous studies conclude that advertising constraints have been ineffective at reducing cigarette smoking. This conclusion is incorrect because it ignores the fact that advertising restrictions have supply as well as demand effects. The authors extend existing research by showing that advertising regulations, especially those found in the recent National Tobacco Settlement, have decreased the equilibrium level of cigarette consumption in the United States, a result that holds for both myopic and rational addiction models.

Does Advertising Matter? Estimating the Impact of Cigarette Advertising on Smoking Among Youth in Developing Countries

“…While the indirect effect of advertising restrictions is beyond the scope of this analysis, it can and has been explored in a general equilibrium setting. Based on U.S. data, Iwasaki, Tremblay, and Tremblay (2006) show in a general equilibrium framework that the indirect effects of advertising regulation dominate the direct market effects, and that advertising bans end up reducing equilibrium consumption by decreasing price competition among tobacco suppliers rather than by lowering market demand among consumers. While extrapolating this evidence to developing countries must be done with caution, it shows that even as market demand equations such as the ones in this paper fail to present evidence of a strong advertising ban impact on market demand, the bans could still impact equilibrium consumption as decreased price competition in the cigarette market sustains a higher price level (Farr, Tremblay, and Tremblay 2001; Gallet 2003; Iwasaki, Tremblay, and Tremblay 2006).…”

“…Blecher (2008) evaluates aggregate data from 30 developed and developing countries and finds similar evidence that the impact of bans is largest when they are most comprehensive; however, both studies may be limited by nonstationarity of cigarette consumption data. Using U.S. data, Iwasaki, Tremblay, and Tremblay (2006) conclude that even if advertising restrictions do not decrease market demand, they are still effective in decreasing the equilibrium cigarette consumption in the United States due to supply side effects from reduced price competition. In contrast, Nelson (2003a) evaluates data from 20 OECD countries and concludes that the causal link between advertising bans and cigarette consumption flows not from bans to consumption but, rather, from consumption to bans—i.e., the change in political climate that was concurrent with reduced consumption led to the introduction of stricter bans.…”

The Impact of Antismoking Policies in Korea on Quit Success and Smoking Intentions

“…Avery, Kenkel, and Dean (2006) find that smokers exposed to cessation advertising are more likely to attempt to quit and to succeed in quitting. Iwasaki, Tremblay, and Tremblay (2006) conclude that restrictions on cigarette advertising lower cigarette consumption. However, the statistical impact on cigarette demand from antismoking information and advertising campaigns is either nonexistent (Tremblay and Tremblay, 1995) or of limited impact (statistical probability at the 10% level) (Yorozu and Zhou, 2002).…”

The effect of marketing regulations on efficiency: LeChatelier versus coordination effects

“…If input substitutability is high in the U.S. cigarette industry, then the Broadcast Advertising Ban would not be excessively costly to producers, because they could mitigate the effect of the Ban by reallocating expenditures from broadcast to unrestricted media. 8 For a discussion of other welfare issues involving advertising restrictions in the U.S. cigarette market, see Farr et al (2001) and Iwasaki et al (2006). and is efficient when the score equals 1 (i.e., A = B).…”