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The impact of price on the demand for electronic cigarettes

Institution: University of California, San Francisco
Investigator(s): Tingting Yao,
Award Cycle: 2017 (Cycle 26) Grant #: 26IR-0008 Award: $374,677
Subject Area: State and Local Tobacco Control Policy Research
Award Type: High Impact Research Project Award

Initial Award Abstract

The objective of this study is to estimate the price elasticity of demand (i.e. the percentage change in quantity demanded in response to a one percent change in price) for electronic cigarettes (e-cigarettes) and the relationship between price change of conventional cigarettes/e-cigarettes and e-cigarettes/conventional cigarettes sales in California. In recent years, e-cigarette use is expanding rapidly. In California, the use of e-cigarettes in the past month for adults (aged 18+) tripled from 1.8% in 2012 to 5.8% in 2013, and around 1 in 10 teens reported smoking e-cigarettes in 2014. However, little is known about the health and economic impact of e-cigarette use. This study will provide estimates of the impact of e-cigarette prices on demand for e-cigarettes using two different types of data (household survey data and retail sales data), and the cross-price elasticity between conventional cigarettes prices and e-cigarettes sales. We will also look at the responsiveness of conventional cigarette sales to e-cigarette prices. Our findings will help policymakers to understand the interrelationship between e-cigarette and conventional cigarette sales and prices, and the information will be useful for simulating the potential impact of e-cigarette tax policies. The study objectives will be accomplished by addressing three specific aims:

Aim 1. Estimate own price elasticity and cross-price elasticity of demand for e-cigarettes using household survey data. Own price elasticity will also be estimated by household income and these measures will be compared to determine how different income groups respond to price changes for e-cigarettes. We will also estimate the cross-price elasticity of demand for e-cigarettes by examining the impact of price changes for conventional cigarettes on e-cigarettes sales in California.

Aim 2. Estimate the price elasticity and cross-price elasticity of demand for e-cigarettes using retail sales data. These estimates will be compared with the estimates from Aim 1.

Aim 3. Estimate the cross-price elasticity of demand for conventional cigarettes. We will examine the impact of price changes for e-cigarettes on conventional cigarettes sales using both household survey data and retail sales data.

This study will provide the first California-specific estimates of price elasticity of demand for e-cigarettes. Based on an earlier national study (Huang et al., 2014), we anticipate e-cigarette sales will be very responsive to price changes, but this has not been shown for California or for different income households. The findings from this study will provide useful information for tobacco control policymakers for designing policies to regulate and tax e-cigarettes.