Will Plain Packaging Reduce Cigarette Consumption?*

Economic Papers

Volumn 31, Issue 3, 2012, Pages 303-317

  Clarke, Harry ^a   Prentice, David ^a  

^a LA TROBE UNIVERSITY   (Australia)

Author keywords

advertising; cigarette industry; economics; I18; L11; L66; M37; market structure; plain packaging

Indexed keywords

EID: 84889651946     PISSN: 08120439     EISSN: 17593441     Source Type: Journal    
DOI: 10.1111/j.1759-3441.2012.00186.x     Document Type: Article

References (39)

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2. British American Tobacco Australia (2011), ‘Submission on the Tobacco Plain Packaging Bill 2011’, 6 June. [accessed 20 April 2012] Available at: http://www.yourhealth.gov.au/internet/yourhealth/publishing.nsf/Content/plainpack-tobacco-subs-b.
3. Deloitte (2011), ‘Illicit trade of tobacco in Australia’, February 2011. [accessed 20 April 2012] Available at: http://www.plain-packaging.com/.
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25. The cigarettes in large packets weighed less than cigarettes in smaller packets
26. To ensure cigarette trademarks can be used (except for packaging) and protected by their owners, the Trade Marks Amendment (Tobacco Plain Packaging) Bill was simultaneously passed
27. A third line of criticism is that the PP legislation is unconstitutional, but the debates in constitutional law are beyond the scope of this article
28. Padilla(2010) discusses the role of advertising as signalling and describes how this can preserve margins. In Padilla’s argument, this is associated with conspicuous consumption. However, conspicuous consumption is not necessary for brands to have a signalling role. As MilgromandRoberts(1986) argue, advertising is used to signal the quality of a new product where there is asymmetric information about quality. Advertised products will then tend to be high quality and those that are not, of lower quality. It is not required to observe consumption for these effects to operate
29. There is mixed empirical evidence on this for restrictions in the United States. HolakandReddy(1986) find greater price sensitivity following advertising restrictions, whereas Eckard(1991) finds greater mark-ups
30. Both HolakandReddy(1986) and Eckard(1991) find entry declines following advertising restrictions in the United States
31. It is possible within the Sutton framework for concentration to fall after reducing advertising. However, the sunk costs of advertising and the savings in marginal costs from eliminating packaging would have to be considerable. This is unlikely to be the case for packaging
32. This could either be from existing sellers expanding or new sellers entering
33. For an example, see KeltonandGivel(2008)
34. Both documents refer to how discounting must avoid associations of low prices with low quality. Wills (undated) refers to using established brands or brands supported with extensive advertising
35. The tax changes in 2001 ended favourable treatment for the large pack sizes, which led to relative price increases and a corresponding shift back to twenties, twenty-fives and thirties
36. The difference between total brands from year to year does not always equal the difference in entrants and exits due to brands switching between being imported and being distributed by domestic firms
37. This sort of churn is common in markets as discussed in Sutton(1997)
38. Contraband cigarettes, manufactured legally overseas but diverted to Australia, would presumably cease as the packaging would no longer match that in Australia
39. Specifically, PhamandPrentice(2010) estimate a value for the parameter that captures this, σ, of 0.72, whereas Padilla(2010) varies σ between 0.1 and 0.9