Mind the Gap: Changes in Cigarette Prices after California's Tax Increase

Abstract

Objective: In this study, we investigated whether California's 2017 cigarette tax increase was passed onto smokers equally. Methods: Auditors recorded 4 cigarette prices in the same random sample of licensed tobacco retailers (N = 1049) before the tax increase (January-March 2017) and after (April-September 2018): Natural American Spirit (ultra-premium), Newport menthol (premium), and Pall Mall (value) all from the same manufacturer, and Marlboro (premium). Ordinary least squares regressions examined how the gap in prices varied by market segment and neighborhood demographics, controlling for store type and months since implementation. Paired t-tests assessed whether industry/retail revenue increased. Results: Over-shifting (increase greater than tax) was evident for all 4 brands and was significantly greater for ultra-premium (Mean = $0.40, SD = 0.75) than premium (Mean = $0.25, SD = 0.78) and greater for premium than value brand (Mean = $0.16, SD = 0.67). However, under-shifting (increase less than tax) was evident for Newport in African-American neighborhoods and Pall Mall in Hispanic neighborhoods. After the tax increase, prices were significantly more likely to be discounted and significantly more stores advertised a discount on cigarettes. Conclusion: California's tax increase was not passed onto consumers equally. Non-tax mechanisms to increase price could support intended effects of tobacco taxes.

Popularity of natural American Spirit cigarettes is greater in U.S. cities with lower smoking prevalence

“…Marlboro and Pall Mall sales were lower in cities with higher cigarette excise tax and were not associated with adult smoking prevalence. Prior research found that tobacco companies disproportionately increased the price of ultra-premium brands, compared to value brands, following a cigarette excise tax increase (Henriksen et al, 2019). Using scanner data, our results corroborate NAS's ultrapremium price point.…”

“…Perceptions of relative safety and healthfulness may lead individuals to initiate and/or continue smoking NAS instead of quitting (Pearson et al, 2017). NAS price was higher than Marlboro and Pall Mall prices in all 30 cities, replicating prior results from observed prices in California Henriksen et al, 2019). Standardized at pack sales per 10,000 adult smokers, NAS sales were highest in Minneapolis, Denver, and Portland, and lowest in Boston, Detroit, and New York City.…”

“…We specifically hypothesized that NAS sales volume would be higher in cities with lower adult smoking prevalence, which we used as a proxy for public opinion that smoking is more harmful and less normative (Huang et al, 2014;Kang and Cho, 2020). Given NAS's unique ultra-premium price point Henriksen et al, 2019) and popularity with young adults (Pearson et al, 2017), we tested alternative hypotheses that NAS popularity would relate to higher city income, cigarette excise taxes, and young adult population. To test for brand specific effects, we repeated the analyses with two comparator brands: Marlboro (the top-selling cigarette brand in the U.S.) (Centers for Disease Control and Prevention, 2018) and Pall Mall (a value brand).…”

Cigarette Pack Prices and Sales Following Policy Changes in California, 2011–2018

“…This builds upon a recent study of retail audit data which found over-shifting of Proposition 56 (i.e., greater than $2) for four major cigarette brands but under-shifting for several demographic groups and a significantly greater likelihood of stores offering discounts after implementation of the new tax. [9] The price increase we observed, in conjunction with the similarly timed T21 law, contributed to a reduction in cigarette pack sales in 2017 and 2018. This is consistent with a large prior literature on cigarette taxes, [4] and recent data on restricting tobacco sales to those ≥21 years-old.…”

Follow the Money: A Closer Look at US Tobacco Industry Marketing Expenditures

“…In particular, when tax increases are imposed, firms may use price discrimination to blunt the intended impact to reduce smoking. 10,18,[39][40][41][42] Since raising tobacco taxes is a particularly effective tobacco control strategy 43 through its ability to increase prices, [44][45][46] price-reducing strategies may have critical implications by shifting less of the tax to those who are more price sensitive, thereby reducing the likelihood that they would not smoke.…”