Reducing Tobacco Use and Access Through Strengthened Minimum Price Laws

Abstract

Higher prices reduce consumption and initiation of tobacco products. A minimum price law that establishes a high statutory minimum price and prohibits the industry's discounting tactics for tobacco products is a promising pricing strategy as an alternative to excise tax increases. Although some states have adopted minimum price laws on the basis of statutorily defined price "markups" over the invoice price, existing state laws have been largely ineffective at increasing the retail price. We analyzed 3 new variations of minimum price laws that hold great potential for raising tobacco prices and reducing consumption: (1) a flat rate minimum price law similar to a recent enactment in New York City, (2) an enhanced markup law, and (3) a law that incorporates both elements.

The impact of an increase in excise tax on the retail price of tobacco in New Zealand

“…Furthermore, the long time frame between the announcement of the tax increase and the date when that the tax comes into effect gives the tobacco industry advance warning, and enables them to develop strategies to ‘dilute the effectiveness of the tax increase’ 37. These strategies include stockpiling product, building the tax increase into their cost structure, developing new ultra low cost products, and delaying the price increases.…”

“…Additional policy measures that could limit tobacco companies’ ability to circumvent tax increases include flat rate minimum price laws or mark-up minimum price laws 37. The former measures may prevent introduction of new ultra low cost products while the latter could ensure the full tax increase is reflected in the retail prices.…”

Do state minimum markup/price laws work? Evidence from retail scanner data and TUS-CPS

“…Despite these limitations, our study provides strong evidence to support recent calls for reducing tobacco use and access through adopting and strengthening MPLs 5. In addition, policymakers 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.…”

“…MPLs have been proposed to counteract the tobacco industry’s price-reducing strategies in the context of the industry’s massive promotional and marketing spending 5. In the 10 years in the first decade of this century, cigarette manufacturers' annual spending on price-reducing promotions and other price-reducing mechanisms, whose sole purpose is to reduce the real costs smokers pay for cigarettes, more than doubled to $6.72 billion in 2010, accounting for more than 80% of all promotional expenditures by the industry 20.…”

“…The tobacco industry’s price-reducing tactics diminish the impact of increasing cigarette taxes, and for price-sensitive smokers, such as price-sensitive youth and low-income smokers, who are more likely to take advantage of discounting programmes, these tactics can be detrimental to price-based tobacco control efforts 2–4. While raising state cigarette taxes further can mitigate the negative impact of the industry's price-reducing tactics, in many cases it is not politically feasible to do so due to a lack of political will, along with supermajority voting requirements for tax measures and gubernatorial veto power, as well as threats from the tobacco industry to force tax measures to a ballot measure 5. It was within this context that the tobacco control community advocated non-tax pricing measures, such as minimum markup/price laws (MPLs), as an alternative to cigarette tax increases 5 6…”