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Do tobacco firms use tax increases in strategy?

Big tobacco firms can keep their products reasonably-priced for teenagers and the low-income people by changing the burden of increasing taxes from cheap cigarettes to more expensive brands.

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The research of tobacco companies' behavior during a decade in the UK determined the firms may also often conceal price increases on expensive cigarettes by timing them to correlate with the tax hikes.

Usually countries put taxes on cigarettes as a way to control their use - particularly by making them too costly for youngsters and the low-income population. But Anna Gilmore, the research's lead author from the University of Bath and the UK Center for Tobacco Control Studies, and her fellow scientists said that there was no study on how the UK cigarette market reacted to these taxes.

For instance, did the firms absorb the taxes without spending the extra cost to customers? Or did they increase prices on major of the extra duties to boost earnings?

Using consumer and market analysis from 1998 through 2008, Anna Gilmore and her fellow workers observed that the UK tobacco industry places its products into four groups: premium cigarettes, mid-priced, economy and ultra-low priced cigarette brands.

The British cigarette companies began offering cigarettes at ultra-low price in 2006, when the firms purchased cigarette brands from convenience stores. The category's price to consumers has continued to be practically the same since then, however their market share has increased twofold, as outlined by the experts.

On the whole, Gilmore and her co-workers identified the cigarette makers have a tendency to pass on the tobacco duties to customers on the most expensive brands, but taxes on ultra-low priced brands are not always passed to consumers.

For instance, the price of ultra-low priced cigarettes before taxation decreased by 3 pence in the year after the firms took over the brands, when the price of premium, economy or mid-priced cigarettes boosted between 2 pence and 4 pence from 2006 to 2007. 1 pence is around 0.02 U.S. cents.

The cigarette firms then invented the original price cut on ultra-low priced brands during the next year by raising their pre-tax cost more than 4 pence, in comparison to boosts for premium, mid-priced and economy cigarette brands of around 1 pence to 3 pence.

Afterward, the costs of ultra-low priced brands were fixed while the other groups continued to increase.

Gilmore told that the cigarette producers gain by volume among ultra-low priced brand smokers, and by attracting the young and poor - rather than letting the taxes price them out.

The experts observe a distinctive variation between groups during cigarette price modifications - pre-tax price for the more expensive cigarettes boosts took place between November and May. The prices for the ultra-low priced cigarettes fell during that period and went up again between May and December.

The scientists determine that authorities should examine cigarette prices by sort - premium, mid-priced, economy and ultra-low priced - and consider the industry's pricing methods when setting taxes.

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