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Price increase causes fewer sales of factory‐made cigarettes and higher sales of cheaper loose tobacco in Germany

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  • Reiner Hanewinkel
  • Christian Radden
  • Tobias Rosenkranz

Abstract

Aim of this study is the analysis of the price responsiveness of demand for cigarettes and loose tobacco in Germany over the period 1991–2006. In this period the average consumption of all kinds of cigarettes per capita (German population ≥ 15 years) declined from 634 pieces/quarter to 457pieces/quarter (−28%). Consumption of factory‐made cigarettes decreased from about 545 pieces/quarter to 330 pieces/quarter in 2006 (−39%). In the same time consumption of self‐made cigarettes increased from 89 pieces/quarter to 127 pieces/quarter (+42%). A one Euro Cent increase in price is associated with 28 cigarettes of all kinds consumed less per quarter. Data indicate that the different types of cigarettes are substitutes, e.g. there is evidence for a positive relationship between the price of factory‐made cigarettes and the consumption of hand‐made cigarettes. Thus, the increase in such consumption is rather driven by a positive cross‐price effect of 17.01. Data indicate additionally an overall decrease in the cigarette consumption and a partial switch to cheaper loose tobacco. The availability of low‐taxed loose tobacco may undermine the public health benefits of higher cigarette prices. Price differentials between tobacco products should be reduced in order to maximize the public health benefits of high cigarette prices. Copyright © 2007 John Wiley & Sons, Ltd.

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  • Reiner Hanewinkel & Christian Radden & Tobias Rosenkranz, 2008. "Price increase causes fewer sales of factory‐made cigarettes and higher sales of cheaper loose tobacco in Germany," Health Economics, John Wiley & Sons, Ltd., vol. 17(6), pages 683-693, June.
    • Handle: RePEc:wly:hlthec:v:17:y:2008:i:6:p:683-693
    DOI: 10.1002/hec.1282
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    2. Claudio Agostini, 2010. "Tributación a Los Cigarrillos: Análisis y Propuestas," ILADES-UAH Working Papers inv246, Universidad Alberto Hurtado/School of Economics and Business.
    3. Yuqing Zheng & Chen Zhen & Daniel Dench & James M. Nonnemaker, 2017. "U.S. Demand for Tobacco Products in a System Framework," Health Economics, John Wiley & Sons, Ltd., vol. 26(8), pages 1067-1086, August.
    4. Crespi, Francesco & Liberati, Paolo & Paradiso, Massimo & Scialà, Antonio & Tedeschi, Simone, 2021. "Smokers are different: The impact of price increases on smoking reduction and downtrading," Economic Modelling, Elsevier, vol. 97(C), pages 326-334.
    5. Justin S. White & Hana Ross, 2015. "Smokers' Strategic Responses to Sin Taxes: Evidence from Panel Data in Thailand," Health Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 127-141, February.

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