Raising the cost of cigarettes has been proven to reduce their consumption. While tax increases have been the traditional vehicle for upping the price of smoking, their impact may be blunted by the tobacco industry’s promotional tactics.
A recent study led by a tobacco policy researcher from the School of Public Health at Georgia State University has determined that minimum markup/price laws are an effective way to increase cigarette prices and counteract the price-reducing promotions by the industry.
Minimum markup/price laws, also known as MPLs, were originally implemented in the mid-1900s to protect small businesses against their competitors’ price cuts or below-cost sales, the study notes. Minimum markup laws generally require one or more levels of the distribution chain to apply a markup percentage to the base cost of the cigarettes, in addition to excise taxes or other fees. Minimum price laws define a certain base sales price for cigarettes and often regulate industry practices, such as trade discounts and manufacturer coupons.
To determine the impact of minimum markup/price laws on cigarette prices, the researchers compiled and analyzed cigarette price laws for all states and the District of Columbia, as well as cigarette prices using retail scanner data and the U.S. Census Bureau’s Tobacco Use Supplement to the Current Population Survey.
The results of the study are published in Tobacco Control in the article “Do state minimum markup/price laws work? Evidence from retail scanner data and TUS-CPS.” The study’s lead author is Dr. Jidong Huang, associate professor of health management and policy at Georgia State.
The study found that per-pack cigarette prices were higher across the board in states with such laws. Median cigarette prices were 18 to 52 cents higher than in states without laws on pricing.
“The results from our study suggest that MPLs have the potential to become an effective tool to mitigate the impact of the price-reducing promotions by the industry,” the researchers said. “In addition, policy-makers who seek to strengthen MPLs can also do so by imposing high markup rates and by regulating the distribution of coupons, preventing wholesalers or retailers from providing them directly to consumers, as well as prohibiting combination or multipack sales, restricting competitor price matching and trade discounts.”
The study’s authors also included Hillary DeLong, Dr. Jaime F. Chriqui, Maryam Mirza, Megan C. Diaz and Dr. Frank H. Chaloupka with the University of Illinois at Chicago.