Estimating Cross-Price Elasticity of E-Cigarettes Using a Simulated Demand Procedure

Introduction: Our goal was to measure the cross-price elasticity of electronic cigarettes (e-cigarettes) and simulated demand for tobacco cigarettes both in the presence and absence of e-cigarette availability. Method: A sample of New Zealand smokers (N = 210) completed a Cigarette Purchase Task to indicate their demand for tobacco at a range of prices. They sampled an e-cigarette and rated it and their own-brand tobacco for favorability, and indicated how many e-cigarettes and regular cigarettes they would purchase at 0.5x, 1x, and 2x the current market price for regular cigarettes, assuming that the price of e-cigarettes remained constant. Results: Cross-price elasticity for e-cigarettes was estimated as 0.16, and was significantly positive, indicating that e-cigarettes were partially substitutable for regular cigarettes. Simulated demand for regular cigarettes at current market prices decreased by 42.8% when e-cigarettes were available, and e-cigarettes were rated 81% as favorably as own-brand tobacco. However when cigarettes cost 2x the current market price, significantly more smokers said they would quit (50.2%) if e-cigarettes were not available than if they were available (30.0%). Conclusion: Results show that e-cigarettes are potentially substitutable for regular cigarettes and their availability will reduce tobacco consumption. However, e-cigarettes may discourage smokers from quitting entirely as cigarette price increases, so policy makers should consider maintaining a constant relative price differential between e-cigarettes and tobacco cigarettes.