Working Paper: NBER ID: w28690
Authors: Philip Decicca; Donald S. Kenkel; Feng Liu; Jason Somerville
Abstract: We exploit a quasi-experiment created when New York State began in 2011 to tax cigarettes sold on Native American Reservations. The regime change represents a unique opportunity to quantify brand loyalty because it almost doubled the price of premium-brand cigarettes, while Native brands were still untaxed. We use data from two different sources—the New York State Adult Tobacco Survey and the Nielsen Homescan Panel. We find that the increase in relative prices led to substantial declines in premium cigarette purchases. However, even among the premium consumers with the most to gain from switching, about three-quarters remained brand loyal.
Keywords: brand loyalty; cigarette market; taxation; consumer behavior
JEL Codes: I12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax regime change (H26) | Increase in price of premium-brand cigarettes (D49) |
| Increase in price of premium-brand cigarettes (D49) | Decrease in premium cigarette purchases (D49) |
| Distance to Indian reservation (J15) | Decrease in premium cigarette purchases (D49) |
| Decrease in premium cigarette purchases (D49) | Increase in probability of purchasing Indian-manufactured cigarette brands (F61) |
| Tax regime change (H26) | Brand loyalty persistence (L15) |