Effect of price changes in little cigars and cigarettes on little cigar sales: USA, Q4 2011-Q4 2013

Abstract

Introduction: Little cigars are comparable to cigarettes in terms of shape, size, filters and packaging. Disproportionate tobacco excise taxes, which directly affect purchase price, may lead consumers to substitute cigarettes with less expensive little cigars. This study estimated the effects of little cigar and cigarette prices on little cigar sales.

Methods: Sales data from a customised retail scanner database were used to model a log-log equation to infer own-price and cross-price elasticity of demand for little cigars relative to little cigar and cigarette prices, respectively, from quarter 4 of 2011 to quarter 4 of 2013. Data were available for convenience stores (C-stores) (n=29 states); food, drug and mass merchandisers (FDMs) (n=44 states); and C-stores and FDMs combined (n=27 states). The dependent variable was per capita little cigar pack sales, and key independent variables were the price index for little cigars and cigarettes.

Results: A 10% increase in little cigar price was associated with a 25% (p<0.01) decrease in little cigar sales in C-stores alone, and a 31.7% (p<0.01) decrease in C-stores and FDMs combined. A 10% increase in cigarette price was associated with a 21.5% (p<0.05) increase in little cigar sales in C-stores, and a 27.3% (p<0.01) increase in C-stores and FDMs combined.

Conclusions: Our results suggest that US cigarette smokers are avoiding the high cost of cigarettes by switching to lower priced little cigars. Increasing and equalising prices among comparable products, like cigarettes and little cigars, may motivate cost-conscious smokers to quit.

Keywords: Economics; Non-cigarette tobacco products; Price; Public policy; Taxation.

Figure 1

Little cigars (right) are similar to cigarettes (left) with respect to size, shape, filter and packaging. Source: John H Theilgard, RTI International.