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Coupons and Advertising in Markets for Addictive Goods: Do Cigarette Manufacturers React to Known Future Tax Increases?

In: Substance Use: Individual Behaviour, Social Interactions, Markets and Politics

Author

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  • Dean R. Lillard
  • Andrew Sfekas

Abstract

We develop and test a pricing model for a monopolist that sells an addictive good. The model illustrates the conditions under which a monopolist lowers the price he charges youth when a future tax is imposed. Using household survey data, we investigate whether individuals use “cents-off” coupons in a way consistent with the price discrimination implied by the model. We find evidence that all smokers, not just the young, are more likely to use coupons prior to a tax increase if they are exposed to more advertising. With our data we cannot test whether cigarette manufacturers selectively offer youth price discounts in other ways.

Suggested Citation

  • Dean R. Lillard & Andrew Sfekas, 2005. "Coupons and Advertising in Markets for Addictive Goods: Do Cigarette Manufacturers React to Known Future Tax Increases?," Advances in Health Economics and Health Services Research, in: Substance Use: Individual Behaviour, Social Interactions, Markets and Politics, pages 313-327, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aheszz:s0731-2199(05)16015-4
    DOI: 10.1016/S0731-2199(05)16015-4
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