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The Impact Of Cigarette Advertising On Consumer Surplus, Profit, And Social Welfare

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  • Carol Horton Tremblay
  • Victor J. Tremblay

Abstract

This study estimates the effect of U.S. cigarette advertising on social welfare. Because economists hold different beliefs about the nature of advertising, the analysis uses three different empirical models to test the welfare implication of cigarette advertising. Each model employs estimates of a demand equation and a supply relation to calculate a single point estimate of the impact of advertising on profit, consumer surplus, and total surplus. Bootstrapping generates confidence intervals for each welfare estimate. The results indicate that the cigarette industry is not competitive and that advertising significantly increases market power. Further, advertising significantly reduces consumer surplus if it is either purely persuasive or purely informative but has no significant effect on total surplus.

Suggested Citation

  • Carol Horton Tremblay & Victor J. Tremblay, 1995. "The Impact Of Cigarette Advertising On Consumer Surplus, Profit, And Social Welfare," Contemporary Economic Policy, Western Economic Association International, vol. 13(1), pages 113-124, January.
    • Handle: RePEc:bla:coecpo:v:13:y:1995:i:1:p:113-124
    DOI: 10.1111/j.1465-7287.1995.tb00718.x
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    1. Craig Gallet, 2004. "The efficacy of state-level antismoking laws: Demand and supply considerations," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 28(3), pages 404-412, September.
    2. Benny Overton & John Beghin & William Foster, 2017. "Phytosanitary Regulation and Agricultural Flows: Tobacco Inputs and Cigarettes Outputs," World Scientific Book Chapters, in: John Christopher Beghin (ed.), Nontariff Measures and International Trade, chapter 19, pages 327-337, World Scientific Publishing Co. Pte. Ltd..
    3. World Bank Group, 2018. "An Extended Cost-Effectiveness Analysis of Tobacco Price Increases in the Kyrgyz Republic," World Bank Publications - Reports 29819, The World Bank Group.
    4. Beghin, John C. & Blake Brown, A. & Hasyim Zaini, M., 1997. "Impact of domestic content requirement on the US tobacco and cigarette industries," Agricultural Economics, Blackwell, vol. 15(3), pages 201-212, January.
    5. Carlos E. Carpio & Olga Isengildina-Massa, 2016. "Does Government-sponsored Advertising Increase Social Welfare? A Theoretical and Empirical Investigation," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 38(2), pages 239-259.
    6. Zhang, Mingxia & Sexton, Richard J. & Alston, Julian M., 2002. "Does Branded Food Product Advertising Help Or Hurt Farmers?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(2), pages 1-25, December.
    7. Rajeev K. Goel & Michael A. Nelson, 2006. "The Effectiveness of Anti‐Smoking Legislation: A Review," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 325-355, July.
    8. Stephen Farr & Carol Horton Tremblay & Victor Tremblay, 2001. "The Welfare Effect of Advertising Restrictions in the U.S. Cigarette Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(2), pages 147-160, March.
    9. Craig A. Gallet, 2003. "Advertising and Restrictions in the Cigarette Industry: Evidence of State‐by‐State Variation," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 338-348, July.
    10. Nelson, Jon P., 2006. "Cigarette advertising regulation: A meta-analysis," International Review of Law and Economics, Elsevier, vol. 26(2), pages 195-226, June.
    11. Julian M. Alston & Joanna C. Parks, 2012. "The returns to promotion of healthy choices in Tasmania: are you in the dark about the power of mushrooms?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 56(3), pages 347-365, July.
    12. Henry W. Kinnucan & Yuqing Zheng, 2004. "Advertising's effect on the market demand elasticity: A note," Agribusiness, John Wiley & Sons, Ltd., vol. 20(2), pages 181-188.
    13. Craig A. Gallet & Gary A. Hoover & Junsoo Lee, 2006. "Putting Out Fires: An Examination of the Determinants of State Clean Indoor‐Air Laws," Southern Economic Journal, John Wiley & Sons, vol. 73(1), pages 112-124, July.
    14. Natsuko Iwasaki & Carol Horton Tremblay & Victor J. Tremblay, 2006. "Advertising Restrictions And Cigarette Smoking: Evidence From Myopic And Rational Addiction Models," Contemporary Economic Policy, Western Economic Association International, vol. 24(3), pages 370-381, July.
    15. Rossitza B. Wooster & Craig A. Gallet, 2005. "Settling the Smoke: Public Policy and Shareholder Wealth in the Cigarette Industry," Contemporary Economic Policy, Western Economic Association International, vol. 23(2), pages 211-223, April.
    16. Blecher, Evan, 2008. "The impact of tobacco advertising bans on consumption in developing countries," Journal of Health Economics, Elsevier, vol. 27(4), pages 930-942, July.
    17. Anna E. Tuchman, 2019. "Advertising and Demand for Addictive Goods: The Effects of E-Cigarette Advertising," Marketing Science, INFORMS, vol. 38(6), pages 994-1022, November.
    18. Julian M. Alston & John W. Freebairn & Jennifer S. James, 2003. "Distributional issues in check-off funded programs," Agribusiness, John Wiley & Sons, Ltd., vol. 19(3), pages 277-287.
    19. Bullock, David S. & Salhofer, Klaus, 2003. "Judging agricultural policies: a survey," Agricultural Economics, Blackwell, vol. 28(3), pages 225-243, May.
    20. J. Dunham & ML. Marlow, 2000. "Smoking laws and their differential effects on restaurants, bars, and taverns," Contemporary Economic Policy, Western Economic Association International, vol. 18(3), pages 326-333, July.
    21. Overton, Benny E. & Beghin, John C. & Foster, William E., 1995. "Phytosanitary Regulation and Agricultural Trade Flows: Tobacco Inputs and Cigarettes Outputs," Staff General Research Papers Archive 1590, Iowa State University, Department of Economics.
    22. Seonghoon Hong & Alan R. Collins, 2010. "The Impact Of Antismoking Policies In Korea On Quit Success And Smoking Intentions," Contemporary Economic Policy, Western Economic Association International, vol. 28(4), pages 474-487, October.
    23. Craig A. Gallet, 2006. "Health information and cigarette consumption: supply and spatial considerations," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 33(1), pages 35-47, March.
    24. David S. Bullock & Klaus Salhofer & Jukka Kola, 1999. "The Normative Analysis of Agricultural Policy: A General Framework and Review," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(3), pages 512-535, September.

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