Estimating tax incidence, market power and market conduct: The European cigarette industry

Abstract

Recent theoretical work has shown that the incidence of ad valorem and specific taxes may differ and each may be over or under-shifted onto consumers in the presence of imperfect competition. These results are used to derive a method of estimating market power and conduct. An application is made to the European cigarette industry. Previous empirical comparison of the price effects of ad valorem and specific taxes is limited. For a group of countries with broadly similar cigarette industries, there is evidence of undershifting of both taxes, with the specific tax having a significantly greater impact on price. The extremes of both perfect competition and monopoly can be rejected. Behaviour is no less competitive than the equivalent of Cournot. JEL Classification: H22, L13, L66

How important are tobacco prices in the propensity to start and quit smoking? An analysis of smoking histories from the Spanish National Health Survey

“…An obvious way to restrict such range would be to increase the specific component. Moreover, the results in Delipalla and O'Donell [3] also provide another justification for increasing the specific component if tobacco taxes are intended to discourage consumption, since they find that ad valorem cigarette taxes are undershifted to the consumers whereas specific taxes are overshifted. Finally, these results highlight the fact that the incidence of smuggling is crucial for the effectiveness of tax policy at Effects of time controls in the starting and quitting models …”

“…Moreover, within each of the black and blond groups there is also a good deal of price/product differentiation (Tabacalera [2] presents three price ranges in the blond class in their annual report). The existence of a wide price/product spectrum in the market is not unrelated to the fact that, as reported in Delipalla and O'Donell [3], Spain is one of the EU countries where the specific component of tobacco taxes is smallest and therefore producer prices have a greater weight in the after-tax price.…”

Tobacco Taxation in the European Union

“…A further, testable, implication of the theory is that the pass-through of tax increases to consumer prices should be greater under specific than under ad valorem taxation (Delipalla and Keen, 1992). Indeed, there is some evidence that specific taxes in the EU are more likely to be 'over-shifted' (consumer prices rise by more than the tax) than ad valorem taxes (Delipalla and O'Donnell, 2001).…”

“…Indeed, there is some evidence that specific taxes in the EU are more likely to be 'over-shifted' (consumer prices rise by more than the tax) than ad valorem taxes (Delipalla and O'Donnell, 2001). …”

Buyer Power in U.K. Food Retailing: A 'First-Pass' Test

“…McCorriston et al (1998) extend this analysis in the context of the traditional retail-farm spread model while Weldegebriel (2004) further extends this theoretical framework to explore the role of oligopsony and the spread between retail and farm level prices. From the empirical side, Feuerstein (2002) and Delipalla and O'Donnell (2001), represent recent examples using the role of exogenous shifters to detect the relationship between seller power and incidence.…”