The Demand for and Supply of Cessation Products & Services Frank J. Chaloupka University of Illinois at Chicago

Demand for Cigarettes Extensive econometric research on cigarette demand –Higher cigarette prices reduce smoking 10% price increases reduces overall cigarette consumption by 4%, adult prevalence by 2% –Stronger tobacco control policies reduce smoking Smoke-free air policies Comprehensive tobacco control programs –Some populations more responsive to prices and policies

Smoking Cessation Consistent with more limited econometric research on cessation –Higher cigarette prices induce smokers to quit smoking 10% price rise –increases probability of quit attempt by 10-12% –Increases probability of successful quit by 1-2% –Reduces duration of smoking by 10% –Stronger workplace smoke-free air policies induce employed smokers to quit

Demand for Cessation Products Few economic or other studies examine demand for cessation products –Over-the-counter availability Hyland et al. (2005) – COMMIT data; OTC availability raised use of patch and gum by about 60% among smokers Hu et al. (2000) – OTC availability had negative but insignificant impact on cigarette sales Keeler et al. (2002) – OTC availability significantly raised sales of patch (78-92%) and gum (180%) Chaloupka and Tauras (2004) – OTC availability significantly reduces cigarette sales

Demand for Cessation Products NRT Prices –Series of studies by Tauras and colleagues (2003, 2004, 2005a, 2005b) Scanner-based sales data for 50 US markets Negative and significant own-price effects –Very responsive to product-specific prices (elasticities centered on -2.00) –Overall demand relatively responsive to average NRT prices (elasticity around -0.8) Cross-price effects suggest complementarity between patch and gum Negative impact on cigarette demand

Demand for Cessation Products NRT Advertising –Tauras et al. (2005a) Quarterly scanner-based sales and gross-ratings point data for 50 US markets, Generally find positive and significant impact of advertising on patch sales –Doubling of Nicoderm advertising would raise sales by 3-16 percent –Smaller impact for other products

Demand for Cessation Cigarette taxes/prices –Tauras et al. (2003, 2005a,b) Generally find that higher cigarette prices raise demand for NRT –10% cigarette price increase raises NRT demand by 4- 8% –Chaloupka et al. (2004) July 2002 increase in Illinois cigarette excise tax significantly increased volume of calls to state quitline (2-3 fold increase in call volume) –Very short-lived

Demand for Cessation Tobacco Control Policies –Hyland, Cumming and colleagues (2005a, b, c; 2006) Distribution of free patches to New York state and New York city smokers –Vouchers and direct product provision –1 week, 2 week and 6 week supply –Funded by state tobacco control program Followed implementation of cigarette tax increases and comprehensive smoke-free air policies Smokers calling New York State Smokers’ Quitline eligible to participate Various advertising/promotional strategies coupled with extensive news coverage

Demand for Cessation Tobacco Control Policies –Hyland, Cumming and colleagues (2005a, b, c; 2006) Significant increase (20 fold) in calls to state Quitline –brief follow-up counseling call attempted 6-month quit rates significantly higher for those receiving free NRT –33% vs. 6% for NYC (6 week supply) Higher quit rates among NRT recipients who received follow up counseling call –38% vs. 27% for NYC

Demand for Cessation Summary –Lower prices raise demand –Increased availability raises demand –Increased advertising raises demand –Stronger tobacco control policies raise demand –Support from comprehensive programs raises demand

Supply of Cessation Products Little empirical evidence on supply of cessation products or services Cessation Products: Market structure –Highly concentrated industry Limited availability of various products Little to no price competition –Highly regulated industry Entry difficult Constraints on marketing (product, price, promotion, placement and packaging)

Supply of Cessation Products price quantity demand supply

Supply of Cessation Products price quantity demand supply supply’

Supply of Cessation Products Increased competition would: –Reduce price –Increase availability –Increase marketing efforts –Increase product differentiation All would increase use of products

Supply of Cessation Products How might competition be increased? –Fast-track for approval of new products and generic versions of existing products –Approve OTC sales of additional products –Allow wider distribution Convenience stores and other outlets where cigarettes are sold) –Allow greater variation in packaging/pricing “daily” doses at lower out-of-pocket cost –Allow more aggressive marketing efforts

Supply of Cessation Products Risks from increased competition? –To firms Reduced R&D, fewer new products –Less profitable to develop new products Perceived ineffectiveness –More widespread use by less committed quitters could raise perception that products are not effective and reduce appropriate use in long run –To public health Misuse of cessation products Increased tobacco use

Supply of Cessation Services Impressions: –Cessation counseling and related services widely available Some are free to consumer (e.g. quit lines and industry- sponsored telephone counseling) –Often publicly funded (e.g. quit lines) At risk as funds allocated to tobacco control programs reduced –Not well marketed Limited funding for marketing of cessation services at risk to extent that funds for state/other counter- marketing efforts reduced –Rarely tied to economic incentives E.g. vouchers, insurance coverage

Supply and Demand Summary: –Demand for cessation products responsive to prices, availability, and marketing efforts –Demand for products/services responds to tobacco control efforts –Efforts to increase competition in product market would promote product use –Better marketing of cessation services coupled with economic incentives would like increase use of these services