Prices and E-Cigarette Demand: Evidence from the European Union

Introduction: Many European Union (EU) Member States have expressed the need for EU legislation to clarify the issue of e-cigarette taxation, but the economic evidence to inform creation of such policies has been lacking. To date, only one study – on the U.S. only – has examined responsiveness of e-cigarette demand to price changes.

Methods: We used 2011-2014 pooled time-series data on e-cigarette sales as well as e-cigarette and cigarette prices for six EU markets (Estonia, Ireland, Latvia, Lithuania, Sweden, and the United Kingdom). We utilized static and dynamic fixed-effects models to estimate the own and cross-price elasticity of demand for e-cigarettes. In a separate model for Sweden, we examined the effects of snus prices on e-cigarette sales.

Results: Based on static models, every 10% increase in e-cigarette prices is associated with a drop in e-cigarettes sales of approximately 8.2%, while based on dynamic models, the drop is 2.7% in the short run and 11.5% in the long run. Combustible cigarette prices are positively associated with sales of e-cigarettes. Snus prices are positively associated with sales of e-cigarettes in Sweden.

Conclusions: Our results indicate that the sales of e-cigarettes are responsive to price changes, which suggests that excise taxes can help governments to mitigate an increase in e-cigarette use. E-cigarettes and regular cigarettes are substitutes, with higher cigarette prices being associated with increased e-cigarette sales. Making combustible cigarettes more expensive compared to e-cigarettes could be effective in moving current combustible smokers to e-cigarettes, which might have positive health effects.

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May 2016

Authors:
Michal Stoklosa
Jeffrey Drope
Frank J. Chaloupka