Tobacco Industry Strategies Undermine Government Tax Policy: Evidence From Commercial Data

This paper published in the journal Tobacco Control looks at how the tobacco industry uses pricing strategies to undermine the benefits to public health from tobacco taxation. By analyzing contemporary tobacco industry pricing strategies in the United Kingdom, it finds that, despite regular tax increases, average real prices for the cheapest factory-made and roll-your-own products remained steady from 2013 while production grew. The industry kept prices low by reducing the size of the packs and by price-marking. Each year, when the U.K. budget is implemented, the industry drops its revenue by up to 18 pence per pack, thereby absorbing tax increases (‘undershifting’). The paper concludes that standardized packaging will prevent small pack sizes and price-marking but that further changes in tax policy are needed to minimize the industry’s attempts to prevent sudden price increases.