Advertising, Habit Formation, and U.S. Tobacco Product Demand

American Journal of Agricultural Economics, Forthcoming

32 Pages Posted: 12 Mar 2016

See all articles by Yuqing Zheng

Yuqing Zheng

University of Kentucky - College of Agriculture - Department of Agricultural Economics

Chen Zhen

University of Georgia - Department of Agricultural & Applied Economics

James Nonnemaker

RTI International

Daniel Dench

City University of New York (CUNY) - CUNY Graduate Center

Multiple version iconThere are 2 versions of this paper

Date Written: March 10, 2016

Abstract

The U.S. tobacco market has experienced a shift toward noncigarette tobacco products. We examined the degree of habit formation and the role of advertising for cigarettes, little cigars/cigarillos, large cigars, e-cigarettes, and smokeless tobacco using market-level scanner data for convenience stores. Results based on a dynamic demand system show that while all tobacco products are habitual, e-cigarettes are the most habitual product. More choices of flavors, less restrictions of its use in public places, less documented harmful effects, and a higher upfront cost might explain the higher degree of habit formation for e-cigarettes. We also find that e-cigarettes did not substitute or complement cigarettes. The results imply that e-cigarettes may serve as a gateway to nicotine addiction but not necessarily to cigarette smoking. As to advertising, cigarette magazine advertising did not affect cigarette demand while e-cigarettes’ TV advertising increased e-cigarettes demand with positive spillover to cigarette demand. Such results may help explain e-cigarettes’ recent success in sales and imply that e-cigarette TV advertising might undermine the efforts to reduce cigarette smoking. Advertising was also found to affect the degree of habit formation for cigarettes, large cigars, and e-cigarettes.

Keywords: Advertising, cigar, cigarette, cigarillo, e-cigarette, electronic cigarette, electronic nicotine delivery system, habit formation, smokeless tobacco

JEL Classification: D12, I18, M37

Suggested Citation

Zheng, Yuqing and Zhen, Chen and Nonnemaker, James and Dench, Daniel, Advertising, Habit Formation, and U.S. Tobacco Product Demand (March 10, 2016). American Journal of Agricultural Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2746256

Yuqing Zheng (Contact Author)

University of Kentucky - College of Agriculture - Department of Agricultural Economics ( email )

Lexington, KY 40546
United States

Chen Zhen

University of Georgia - Department of Agricultural & Applied Economics ( email )

Athens, GA 30602-7509
United States

James Nonnemaker

RTI International ( email )

PO Box 12194
Research Triangle Park, NC 27709
United States

Daniel Dench

City University of New York (CUNY) - CUNY Graduate Center ( email )

New York, NY
United States

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