The price elasticity of demand for heated tobacco products
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Department of Internal Medicine, Wexner Medical Center, The Ohio State University Comprehensive Cancer Center, Columbus, United States
Campaign for Tobacco-Free Kids, Washington, United States
Department of Economics, Hebrew University of Jerusalem, Jerusalem, Israel
Publication date: 2020-10-22
Tob. Prev. Cessation 2020;6(Supplement):A71
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Heated Tobacco Products (HTPs) are a new form of tobacco products that heat raw tobacco sticks to generate an aerosol containing tobacco flavor, nicotine, and other chemicals. In 2019, the IQOS HTP, manufactured by Phillip Morris International, have been approved by the US Food and Drug Administration for sale in the US market. Worldwide, HTPs have rapidly gained market shares over traditional cigarettes in several countries. In order to assess how prices and taxes may impact the demand for HTPs and the relationship between HTPs and traditional cigarettes, we construct a unique global panel database for the sales, prices, and excise taxes of HTPs and cigarettes over 2014–2018. We estimate the model with reduced-form regressions to study the combined demands for cigarettes and HTP in response to taxes and prices. We find that the demand for HTP packs is highly responsive to price changes, especially changes induced by excise tax policy. HTP demand also appears to be much more responsive to price changes than cigarette demand confirming that cigarette consumption is inelastic. We also find evidence that HTPs and cigarettes are complements rather than substitutes, but only in one direction: cigarettes or HTP prices are inversely related to HTP consumption, but the decrease in either price does not significantly affect cigarettes demand.
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