Economics of Tobacco Sales

H1 States with Smoking Bans and Cigarette Sales

Each year 440,000 people die, in the United States alone, from the effects of cigarette smoking (American Cancer Society, 2004). As discussed by Scheraga & Calfee (1996) as early as the 1950’s the U.S. government has utilized several methods to curb the incidence of smoking, from fear advertising to published health warnings. Kao & Tremblay (1988) and Tremblay & Tremblay (1995) agreed that these early interventions by the U.S. government were instrumental in the diminution of the national demand for cigarettes in the United States. In more recent years, state governments have joined in the battle against smoking by introducing antismoking regulations.

In a research article by Gallet (2004), several aspects of the clean indoor-air laws were closely examined. Set apart from other literature on the same topic, Gallet (2004) proposed that the degree of enforcement of these laws was just as important as the laws themselves. States that maintained the most restrictive clean-air laws encouraged much more competition within the cigarette industry; hence prices were adjusted closer to marginal cost which caused the availability of supply to increase (Gallet, 2004). Conversely, Keeler, Barnett, Manning, & Sung (1996) concluded that the price adjustment closer to marginal demand could be explained as an attempt to compensate for the reduction of demand caused by the antismoking laws. Regardless of the opinions of the papers on this aspect of the clean indoor-air laws, both agreed that state regulations that prohibit or limit smoking in public places decreased the cigarette demand.

Extraneous variables, excluding state smoking restrictions, may influence state cigarette sales. State cigarette sales may be influenced by “bootlegging,” identified as the crossing of state lines to purchase cigarettes in a state that sells cigarettes at a less expensive price (Gallet, 2004; Meier & Licari, 1997). Gallet (2004) identified “bootlegging” as Nprice, or the minimum neighbor state price ($). As stated previously, Gallet (2004) examined not only states with clean indoor-air laws, Clean1, but also the degree to which these laws were enforced within the individual states, Clean2. The consensus of the reviewed literature, those both including and excluding the extraneous variable, found that the institutions of state smoking bans affect cigarette sales.

Discussion

The results of this study are consistent with the overall literature’s findings (Gallet, 2004; Meirer & Licari, 1997) that states with smoking bans have a decrease in cigarette sales. However, caution is warranted in the true reliability of the data presented in this study, because of the nature of the data. The data is representative of only two years; the lack of longitudinal information makes it difficult to gage the reliability of the results as a predictor of previous or future year’s cigarette sales. Another limitation of the data is that extraneous events, such as the degree of law enforcement, severity of punishment, or “bootlegging” where not considered as factors. Note, however, the decision to not include “bootlegging” and degree of enforcement in the parameters of this study was a conscious one. We felt that the presence of the “bootlegging” affect was apparent both before and after state smoking bans were established and therefore determined it was unnecessary to account for this activity. It was also determined that the level of enforcement was unrelated to our hypothesis. Regardless of any limitations to this study, the overall results were in agreement with the majority of literature available on the same topic.

A limitation noted of the literature was the lack of specific data prior to and immediately following the employment of state smoking restrictions. While Gallet (2004) closely examines the results of states cigarette sales following the introduction of state smoking laws, he lacks a direct comparison to sales prior to the laws. The deficient amount of collective data makes it problematical to clearly isolate the direct effect of the antismoking laws.

Implications of this study conclude that if it is the intention of states to reduce the amount of cigarettes sold, and therefore consumed, the introduction of legislation limiting or banning smoking in public places will appear in an increased amount of states across the country. In accordance with Kao & Tremblay (1988) and Tremblay & Tremblay’s (1995) testimony of the importance of the early U.S. government involvement in cigarette dealings, thus decreasing the demand for the product, we propose the same significance of state antismoking laws.

The results of the present analysis of the hypothesis’ findings are consistent with the literature in that