Quantifying Brand Loyalty: Evidence from the Cigarette Market

59 Pages Posted: 19 Apr 2021 Last revised: 24 Apr 2021

See all articles by Philip DeCicca

Philip DeCicca

McMaster University - Department of Economics; Ball State--Department of Economics

Donald Kenkel

Cornell University

Feng Liu

Shanghai University of Finance and Economics; The Chinese University of Hong Kong, Shenzhen

Jason Somerville

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: April 2021

Abstract

We exploit a quasi-experiment created when New York State began in 2011 to tax cigarettes sold on Native American Reservations. The regime change represents a unique opportunity to quantify brand loyalty because it almost doubled the price of premium-brand cigarettes, while Native brands were still untaxed. We use data from two different sources—the New York State Adult Tobacco Survey and the Nielsen Homescan Panel. We find that the increase in relative prices led to substantial declines in premium cigarette purchases. However, even among the premium consumers with the most to gain from switching, about three-quarters remained brand loyal.

Suggested Citation

DeCicca, Philip and Kenkel, Donald and Liu, Feng and Somerville, Jason, Quantifying Brand Loyalty: Evidence from the Cigarette Market (April 2021). NBER Working Paper No. w28690, Available at SSRN: https://ssrn.com/abstract=3829388

Philip DeCicca (Contact Author)

McMaster University - Department of Economics ( email )

Hamilton, Ontario L8S 4M4
Canada

Ball State--Department of Economics ( email )

United States

Donald Kenkel

Cornell University ( email )

Ithaca, NY 14853
United States

Feng Liu

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

The Chinese University of Hong Kong, Shenzhen ( email )

Jason Somerville

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

HOME PAGE: http://jason-somerville.com

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