The Welfare Effect of Advertising Restrictions in the U.S. Cigarette Industry

The welfare effect of advertising restrictions in the U.S. cigarette industry depends upon the impact of advertising on consumer and producer surplus, the transfer to consumers for being exposed to utility-reducing advertising, and smoking externalities. We estimate a demand equation and a supply re...

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Bibliographic Details
Published in:Review of industrial organization 2001-03, Vol.18 (2), p.147-160
Main Authors: FARR, STEPHEN J., TREMBLAY, CAROL HORTON, TREMBLAY, VICTOR J.
Format: Article
Language:English
Subjects:
Advertising
Advertising rates
Advertising restrictions
Bans
Cigarette industry
Cigarette smoking
Cigarettes
Consumers
Consumption
Costs
Equilibrium
Estimates
Fairness
Industrial organization
Liquor
Market power
Market share
Negative externalities
Print advertising
Profitability
Profits
Smoking
Social welfare
Studies
Television advertising
Tobacco
Tobacco industry
U.S.A
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Summary:The welfare effect of advertising restrictions in the U.S. cigarette industry depends upon the impact of advertising on consumer and producer surplus, the transfer to consumers for being exposed to utility-reducing advertising, and smoking externalities. We estimate a demand equation and a supply relation simultaneously and use the parameter estimates to generate predictions of the impact of advertising restrictions on social welfare. Our results show that advertising restrictions benefit producers by limiting competition and generating higher industry profits, and such restrictions lower social welfare if the external cost of cigarette smoking is sufficiently low.
ISSN:0889-938X
1573-7160
DOI:10.1023/A:1007801608741