Background:
The market for heated tobacco products (HTPs) has grown exponentially in recent years and many governments have started to tax HTPs to regulate their use. Currently, the evidence on how prices and taxes of HTPs impact tobacco use behaviors (e.g., the own price elasticity of HTP demand and cross-price elasticity that reflect how HTP and cigarette costs would influence the consumption of each form) is lacking.

Objective:
In order to fill in this evidence gap, this study uses novel HTP price and tax data to assess own price elasticity for HTP demand, as well as cross-price elasticity between HTP and cigarette consumption.

Methods:
We use a unique database on quarterly retail prices of Marlborobranded heated tobacco units and cigarettes from 2014 to 2022, developed by the Campaign for Tobacco Free Kids, in all countries where both HTPs cigarettes are sold. We link them to quarterly sales data obtained from PMI’s investors’ reports for cigarette and heated tobacco and estimate own- and crossprice elasticity of cigarette and HTP demand using a seemingly unrelated regressions model.

Results:
We find that HTP demand is very elastic to HTP prices, with own-price elasticity ranging between -1.6 and -2.3 in preferred specifications. By contrast, though cigarette demand responds significantly to price changes, the own-price elasticity of cigarettes is much smaller, ranging between -0.4 and -0.6.

Conclusions:
The cross-price elasticity is not symmetric between products. While changes in the price of cigarettes significantly affects HTP demand, HTP price changes have no significant impact on cigarette demand.