Tobacco Market Pricing Strategies Ahead of Tax Adjustments: Evidence From a Unique Retail Price Survey

This study challenges the tobacco industry’s claim that specific excise tax increases undermine public health objectives by driving consumers to a static, cheaper illicit market. Exploiting a unique dataset of 5,366 cigarette retail price observations across Ha Noi and Ho Chi Minh City collected in February 2025, we analyze market dynamics ahead of major tax legislation. We find that the licit industry engaged in coordinated “overshifting,†raising prices by an average of 8.3%, more than double the national inflation rate, particularly in the price-sensitive economy segment. Crucially, illicit cigarette prices also rose by an average of 2,400 VND, displaying a †shadow pricing†dynamic where sellers mirrored licit trends to maximize profits rather than maintain low-price competitiveness. These findings invalidate the industry’s †price gap†argument, confirming that the market has significant capacity to absorb the proposed 5,000 VND specific tax and that policymakers should confidently implement robust, enforcement-backed tax reforms.