Own and cross price elasticity of demand for e-cigarettes among U.S. adult smokers

In recent years e-cigarettes have become popular and are generating much interest in the United States.  Interest is by consumers; big tobacco companies that are increasingly entering the e-cigarette market; and tax and regulatory bodies. With regard to the latter group, the Food and Drug Administration (FDA) is predicted to obtain the authority to regulate e-cigarettes with the ultimate, mandated goal of improving public health. Federal, state and country authorities may consider taxing e-cigarettes as they do for tobacco cigarettes. 

Information on the own and cross price elasticity of the demand for e-cigarettes will likely become a central issue in policy debates. However, empirical evidence on responses to prices of e-cigarettes is scant, in large part due to the fact that e-cigarettes have been on the market only a limited amount of time such that there is little data on which to base rigorous analysis. Further, available data becomes outdated very quickly given the rapidly advancing demand for e-cigarettes.

In this study, we overcome the lack data by using a stated preference survey approach. Specifically, we conduct an online-based discrete choice experiment (DCE) in a sample of adults smokers in the U.S. to estimate the own and cross price elasticity of demand for e-cigarettes. The DCE approach is advantageous as the method is specifically designed to measure how consumers make choices between products and how they trade-off product features and specifically price. In addition, our DCE provides policy-relevant information on price elasticities in advance of market based data. We adopt a latent class multinomial logit model to identify three types of smokers: tobacco cigarette smokers, e-cigarette users, and individuals who switch between tobacco users and e-cigarette users – dual users. This grouping allows us to estimate own and cross price elasticity estimates of demand for e-cigarettes and tobacco cigarettes for different types of smokers. We discuss how our estimates of own and cross price elasticity can be used in the development of policies to improve the health of the public.

This paper has not been previously presented.