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

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Advances in Health Economics and Health Services Research

ISSN: 0731-2199
Series editor(s): Prof. Michael Grossman, Prof. Bjorn Lindgren, Prof. Robert Kaestner, Prof. Kristian Bolin

Subject Area: Health Care Management/Healthcare

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Document Information:
Title:	Coupons and Advertising in Markets for Addictive Goods: Do Cigarette Manufacturers React to Known Future Tax Increases?
Author(s):	Dean R. Lillard, Andrew Sfekas
Volume:	16 Editor(s): Björn Lindgren, Michael Grossman ISBN: 978-0-76231-233-7 eISBN: 978-1-84950-361-7
Citation:	Dean R. Lillard, Andrew Sfekas (2005), Coupons and Advertising in Markets for Addictive Goods: Do Cigarette Manufacturers React to Known Future Tax Increases?, in Björn Lindgren, Michael Grossman (ed.) Substance Use: Individual Behaviour, Social Interactions, Markets and Politics (Advances in Health Economics and Health Services Research, Volume 16), Emerald Group Publishing Limited, pp.313-327
DOI:	10.1016/S0731-2199(05)16015-4 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Article type:	Chapter Item
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.