Effects Of The Evolving Global Tobacco Product Landscape On Smokers' Switching Behaviors

ABSTRACT

How effectively governments can use tobacco tax as a public health and a revenue-generating

measure depends on how able smokers are to circumvent the tax by switching to other tobacco

products. Recently, tobacco product switching has become more common, especially with many

new tobacco product types appearing on the market. The research on these switching behaviors is

scarce. This thesis provides analysis in three aspects tobacco product switching: (1) price-driven

between-product substitution, (2) switching to newly-introduced tobacco products and (3)

switching to products on which no domestic tax has been paid.

When the ratio of tobacco product prices changes, consumers sometimes choose to switch between

products. Zambia, with a high prevalence of roll-your-own (RYO) tobacco, a less costly alternative

to factory-made (FM) cigarettes, is a case in point. The study presented in the second chapter of

this thesis used individual-level data obtained from the 2012 and 2014 waves of the ITC Zambia

Survey to model the probability of FM and RYO cigarette smoking, as well as between-product

substitution. It found that increasing the cigarette tax, with corresponding price increases, could

significantly reduce cigarette use in Zambia. Furthermore, reducing between-product price

differences would reduce substitution from FM to RYO.

With the proliferation of many new tobacco product types, traditional cigarettes are becoming less

dominant. With the introduction of a new product to the market, between-product switching might

not be influenced purely by price differences across product types, but rather driven by the

increased variety of products on the market. Chapter three makes use of a natural experiment

created during the rollout of a heated tobacco product, IQOS, in 2015 and 2016 in Japan to examine

if trends in cigarette sales have changed with the introduction of IQOS in each region. A series of

placebo models are estimated to test if events other than IQOS introduction could have better

explained trends in cigarette sales. The results show that the introduction of IQOS likely reduced

cigarette sales in Japan.

Large differences in cigarette prices observed between geographical regions might incentivize

some smokers from regions with higher cigarette prices to switch to cheaper cigarettes available

across the border. The fourth chapter uses 2004-2017 official European Commission data and a

methodology developed by Becker (1990), to analyze the association between prices and crossborder

cigarette purchases in the European Union. Incentives for cross-border purchasing are

measured as a function of differences in cigarette prices between bordering countries, controlling

for population density near borders and for gasoline prices. The scale of cross-border cigarette

purchasing in the EU is small, and not-significant through maritime borders. An upward

convergence of cigarette prices across EU Member States would further reduce the cross-border

purchasing problem.