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Cigarette price minimization strategies in the United States: price reductions and responsiveness to excise taxes

Michael F Pesko, Andrea S Licht, Judy M Kruger
Nicotine & Tobacco Research 2013, 15 (11): 1858-66
23729501

INTRODUCTION: Because cigarette price minimization strategies can provide substantial price reductions for individuals continuing their usual smoking behaviors following federal and state cigarette excise tax increases, we examined independent price reductions compensating for overlapping strategies. The possible availability of larger independent price reduction opportunities in states with higher cigarette excise taxes is explored.

METHODS: Regression analysis used the 2006-2007 Tobacco Use Supplement of the Current Population Survey (N = 26,826) to explore national and state-level independent price reductions that smokers obtained from purchasing cigarettes (a) by the carton, (b) in a state with a lower average after-tax cigarette price than in the state of residence, and (c) in "some other way," including online or in another country. Price reductions from these strategies are estimated jointly to compensate for known overlapping strategies.

RESULTS: Each strategy reduced the price of cigarettes by 64-94 cents per pack. These price reductions are 9%-22% lower than conventionally estimated results not compensating for overlapping strategies. Price reductions vary substantially by state. Following cigarette excise tax increases, the price reduction available from purchasing cigarettes by cartons increased. Additionally, the price reduction from purchasing cigarettes in a state with a lower average after-tax cigarette price is positively associated with state cigarette excise tax rates and border state cigarette excise tax rate differentials.

CONCLUSIONS: Findings from this large, nationally representative study of cigarette smokers suggest that price reductions are larger in states with higher cigarette excise taxes, and increase as cigarette excise taxes rise.

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