OREGON STATE UNIVERSITY

OSU study: cigarette ad ban decreases consumption

01/13/1998

CORVALLIS - A new study by economists at Oregon State University has found that banning cigarette advertising on television and radio may have decreased cigarette consumption by about 10 percent in the short term, and by as much as 17 percent over a longer period of time.

The findings directly contradict other studies which have said the advertising ban has little or no effect on consumption.

"We've looked at the other studies and the one factor they all ignore is that an advertising ban enhances market power, which raises prices and reduces quantity demanded," said Victor Tremblay, professor and chair of the Department of Economics at OSU, and co-investigator in the study.

When advertising is banned, it is more difficult for new brands to effectively compete in the market, giving more "market power" to established brands, Tremblay explained. Typically, a ban encourages those established companies to raise prices, even while lowering their marketing costs.

Tremblay said profits for most tobacco companies have gone up since the broadcast advertising ban of 1971, despite a spate of bad publicity and high litigation costs.

"One of the reasons for their high profits is a higher price per unit," Tremblay said, citing the rising price of cigarettes. "Another factor is that tobacco companies have done well in the international sector, especially in places like Japan and Russia. They've used their marketing expertise overseas."

The OSU economists say the advertising ban may be effective in reducing consumption, but it is a poor example of public policy. The ban has resulted in greater market power and high profits for the well-established tobacco companies.

Consumption could be reduced equally well through taxation, the economists suggest, and the revenues could be funneled into appropriate health care services. The study was conducted by Victor Tremblay and Carol Horton Tremblay, an assistant professor of economics at OSU.

"The market is dynamic for addictive products, but there is a sense that in the U.S., things may be coming to an end," said Victor Tremblay. "There are fewer and fewer new smokers every year, and there also are those who vow not to quit. Their brand loyalty is strong, which will continue to raise the price.

"And that," he added, "will chase away even more new consumers."

Tobacco companies are trying to counter their negative image by producing "healthier" cigarettes that filter out some of the tar and nicotine, according to Carol Horton Tremblay. Ironically, they may get a boost from a recent court settlement in which cigarette producers acknowledged their liability, she pointed out.

"The companies have been trying to market these 'healthier' cigarettes for years but they couldn't advertise through print and billboards that they were healthier, because that implied a health hazard for their other products," she said. "Now that they have admitted their liability and will reach a settlement, they are free to promote these 'healthier' products."

Consumption can go up during advertising bans for short periods of time, the economists noted, citing the cigar-smoking fad among young adults, including women.

"These kinds of fads are hard for economists to explain," said Victor Tremblay. "They are consumer-driven bumps on the continuum, fueled by images of key people - celebrities - smoking cigars. But they're usually short-lived. I guarantee, within 10 years, the levels will come back.

"Long-term trends are based on more rational factors," he added.