Do cigarette producers price-discriminate by state? An empirical analysis of local cigarette pricing and taxation

Listed in:

• Tobacco industry's tactics relating to tax
• Pricing strategies
• Tax and price in HICs
• Aggregate demand for tobacco products

Abstract

This study analyzes the interactive effects of oligopoly pricing, state taxation, and anti-smoking regulations on retail cigarette prices by state, using panel data for the 50 US states between 1960 and 1990. The results indicate that cigarette producers do price-discriminate by state, though the effect is not large relative to the final retail price. There are two further results: (1) state taxes are more than passed on — a 1-cent state tax increase results in a price increase of 1.11 cents, and (2) sellers offset state and local anti-smoking laws with lower prices, thereby blunting effects of the regulations.