Effects of a television and radio advertising ban: A study of the cigarette industry

Listed in:

• Analysis of aggregate data
• Tax and price in HICs
• Impact of tax on tobacco use
• Theoretical frameworks
• Aggregate demand for tobacco products

Abstract

By using the cigarette industry's ad ban of 1970 as a "natural" experiment, the authors explore managerially related effects of such an advertising "shock" through price and advertising elasticities as well as brand purchase inertia. Results indicate substantial differences in the elasticity and inertia values between pre- and post-ban periods. In an environment with reduced advertising options, product demand is more price sensitive. Demand also becomes more inelastic with respect to advertising fluctuations if television and radio can no longer be used as media vehicles. Brand purchase inertia is significantly higher after the ban as consumers cease to learn of and experiment with new brands. The study has important implications for brand management in a regulatory setting and addresses the possibility of an advertising ban's potential to act as a barrier to entry.