Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 1, 2004 erstellt
Description:
An empirical dynamic oligopoly model of the cigarette industry is developed to study the responses of firms to various anti-smoking policies and to estimate the implications for the policy efficacy. Firms are modeled as coordinating in price and competing in advertising in a dynamic game. The dynamic model captures two crucial features of the cigarette industry: 1) dynamic demand due to addiction and 2) differences between young smokers and adult smokers in their responses to price and advertising. The structural parameters are estimated using a combination of micro and macro level data and firms' optimal price and advertising strategies are solved as a Markov Perfect Nash Equilibrium. I find that the estimated dynamic model predicts industry prices and advertising expenditures extremely well. Moreover, the simulation results show that increasing the tobacco tax reduces both the overall smoking rate and the youth smoking rate, while advertising restrictions may back fire and actually increase the youth smoking rate. Furthermore, the long run effects of anti-smoking policies on reducing smoking rates tend to be smaller than the short run effects, as firms have stronger incentives to exploit current smokers over the short run