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Combustible cigarettes cost less to use than e-cigarettes: global evidence and tax policy implications
  1. Alex C Liber1,2,
  2. Jeffrey M Drope1,
  3. Michal Stoklosa1
  1. 1Economic and Health Policy Research, Intramural Research Department, American Cancer Society, Atlanta, Georgia, USA
  2. 2Health Management and Policy Department, University of Michigan School of Public Health, Ann Arbor, Michigan, USA
  1. Correspondence to Alex C Liber, Department of Health Management & Policy, University of Michigan School of Public Health, 1420 Washington Heights, Ann Arbor, MI 48109-2029, USA; acliber{at}umich.edu

Abstract

Background Some scholars suggest that price differences between combustible cigarettes and e-cigarettes could be effective in moving current combustible smokers to e-cigarettes, which could reduce tobacco-related death and disease. Currently, in most jurisdictions, e-cigarettes are not subject to the same excise taxes as combustible cigarettes, potentially providing the category with a price advantage over combustible cigarettes. This paper tests whether e-cigarettes tax advantage has translated into a price advantage.

Methods In a sample of 45 countries, the price of combustible cigarettes, disposable e-cigarettes and rechargeable cigarettes were compared.

Results Comparable units of combustible cigarettes cost less than disposable e-cigarettes in almost every country in the sample. While the e-liquids consumed in rechargeable e-cigarettes might cost less per comparable unit than combustible cigarettes, the initial cost to purchase a rechargeable e-cigarette presents a significant cost barrier to switching from smoking to vaping.

Discussion Existing prices of e-cigarettes are generally much higher than of combustible cigarettes. If policymakers wish to tax e-cigarettes less than combustibles, forceful policy action—almost certainly through excise taxation—must raise the price of combustible cigarettes beyond the price of using e-cigarettes.

  • Electronic nicotine delivery devices
  • Taxation
  • Economics
  • Public policy

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Introduction

E-cigarettes were invented in 2006 and as a new product, the long-term health harms of e-cigarette use remains largely unknown.1 ,2 Most health professionals, however, conclude that the absolute health risk to an individual using the current generation of e-cigarettes is much less than if that individual were using combustible cigarettes.3 Some scholars and health practitioners argue that a pragmatic public health policy encouraging current smokers of combustible cigarettes to switch to e-cigarettes could rapidly reduce tobacco-related death and disease.4 Such a public health breakthrough would more likely occur if e-cigarette prices were sufficiently lower than prices of combustible cigarettes. Chaloupka et al5 argued in the New England Journal of Medicine in August 2015, that such a price differential would incentivise users of highly dangerous combustible cigarettes to shift to using less dangerous e-cigarettes. This paper seeks to determine the product pricing environment for combustibles and e-cigarettes within the broader context of the possibility of policies that promote differential pricing.

Warnings that e-cigarettes are a cheap, tax-advantaged product relative to heavily taxed combustible cigarettes have been repeatedly claimed in the scientific literature and lay media. In 2013, the Wall Street Journal claimed, “e-cigarettes’ biggest advantage over traditional cigarettes is their price”.6 A 2015 paper by Mainous et al7 claims, “in their current untaxed position, e-cigarettes are a financially attractive alternative to conventional cigarettes”. These claims, however, do not appear to be based on any kind of verifiable, empirical price data. The pervasiveness of this claim may lead policymakers to begin imposing e-cigarette taxes (and raising product prices) before we are certain that e-cigarettes are cheaper than combustible cigarettes.

To date, there is no widely accepted method to compare the prices of e-cigarettes to other tobacco products. Making this comparison requires overcoming two challenges: systematically collecting e-cigarette product price data, and then establishing equivalent doses of e-cigarettes and combustibles. This paper begins to address these challenges and presents preliminary price comparisons among combustible cigarettes and two e-cigarette product types based on data from a sample of 45 countries. We find that the comparable unit price of e-cigarettes is generally higher than combustibles, which suggests that the price incentive for smokers of combustible cigarettes to switch to e-cigarettes does not yet exist in most countries.

Only limited previous empirical work has focused on measuring the prices of e-cigarette products. Using data from 2012 and 2013, Huang et al8 found that e-cigarettes sold in the USA cost more than double a pack of combustible cigarettes. Loomis et al9 observed that in 2013, the mean price of a rechargeable e-cigarette starter pack was more than triple the mean price of a disposable e-cigarette in the USA. Pepper and Brewer10 found in a review of global data collected from 2009 to 2011, that e-cigarette users’ impressions of the cost were variable and inconsistent: some thought e-cigarettes saved money while others believed that e-cigarettes cost more money. These inconsistent findings underscore the critical nature of identifying the underlying assumptions regarding product dose equivalence. All the same, we use existing research as the basis of our assumptions to develop a meaningful preliminary analysis, but we elucidate the resultant biases created by these assumptions.

Methods

We obtained unit prices for each product subcategory from price and market size data obtained from Euromonitor International for 2014.11 We calculated the weighted average price of combustible cigarettes by dividing the value by the number of packs sold in each country. For e-cigarette products, we were unable to calculate the weighted average price, as we did for combustibles, because Euromonitor provides only an unscientific sample of product prices for the e-cigarette category in each country. Therefore, we obtained the price of e-liquids and disposable e-cigarettes by taking the median price of a standard unit in each product category in each country. Finally, we used observations of the minimum price for rechargeable e-cigarettes, in order to capture the barriers to entry an e-cigarette user faces when switching from combustibles. For our purposes, we define rechargeable e-cigarettes to include open/tank systems as well as rechargeable cig-a-likes because these systems can be used to consume e-liquid that is sold separately. The price of e-liquid reflects the price of using a rechargeable e-cigarette only if a user has already purchased the rechargeable device, so we include the price of the least expensive rechargeable e-cigarette in order to reflect the actual start-up cost of using e-liquid, but also to make e-cigarettes as cost-competitive to combustibles as possible. Our study sample contained data from 45 countries that had prices for both combustible cigarettes and at least one e-cigarette product. To enable comparison, all prices are converted into 2014 US dollars using market exchange rates from the World Bank Development Indicators.12

We standardised prices to a comparable, equivalent unit volume. For combustible cigarettes, the comparable unit was a 20-stick pack. For disposable e-cigarettes, the comparable unit was a single electronic ‘stick’, which previous research identifies as producing a comparable number of puffs to a pack of combustible cigarettes (150 puffs).13 ,14 Realistically, this assumption underestimates the comparable unit price of disposable e-cigarettes relative to combustible cigarettes, because if the equivalency is assumed to be based on nicotine delivery, a disposable e-cigarette has been typically equivalent to far less than one pack of combustible cigarettes,13 implying an even higher comparable unit price for those devices. For e-liquids, the comparable unit was 3.55 mL of e-liquid to be used with a rechargeable e-cigarette, an equivalency based on laboratory experiments by the Italian Customs Ministry which established that 1 mL of e-liquid is consumed over a length of time equal to which a typical smoker consumes 5.63 combustible cigarettes.15 It implies that a pack-per-day smoker, a figure close to the global average of 17.7 cigarettes consumed per day per smoker in 2012,16 would consume 3.55 mL of e-liquid in the time it would take to consume their normal daily ration of cigarettes. This figure is also similar to the average daily e-liquid consumption of 3–4 mL found in surveys and clinical trials of e-cigarette users.17 ,18

Two-tailed mean comparison tests were performed to determine if product prices were different in high-income countries (HICs) compared with low-income and middle-income countries (LMICs) using World Bank classifications.12 Two-tailed paired t tests were performed to determine if product prices were different in all countries and within separate groups of HICs and LMICs. Finally, we calculated a payback period on the purchase of a rechargeable e-cigarette, which is the number of days that pass before a pack-per-day smoker in each country has recouped the extra cost of purchasing a rechargeable e-cigarette and then purchasing a daily ration of e-liquid, while avoiding purchasing their daily pack of combustible cigarettes.

Results

We find that comparable unit prices of disposable e-cigarettes and e-liquids for rechargeable e-cigarettes are on average higher than prices of combustible cigarettes in LMICs. In HICs, while the comparable unit price of disposable e-cigarettes is higher than prices of combustible cigarettes, the comparable unit price of e-liquid for rechargeable e-cigarettes is lower than the price of combustible cigarettes (figure 1). Importantly, for rechargeable e-cigarette users, it is crucial to consider the significant start-up cost of purchasing the rechargeable device. If this cost is taken into account, the start-up price of rechargeable e-cigarettes is many times higher than the price of a pack of combustible cigarettes in both HICs and LMICs (figure 1).

Figure 1

Start-up price to the consumer. Source: Authors’ analysis of the Global Passport Information Database, 2014, Euromonitor International. Notes: Prices are in 2014 US dollars. Combustible prices are in-country weighted averages. Disposable and e-liquid prices are in-country medians. Rechargeable e-cigarette prices are in-country minimums.

We report in table 1 that while weighted average prices of cigarettes in HICs are significantly higher than in LMICs, we observe no such significant difference for the median purchase prices of e-cigarette products at the 95% confidence level. Table 2 reports that the median purchase price of a single disposable e-cigarette was greater than the weighted average price of a pack of combustibles among all countries and within both country-income groups in the study sample. Table 2 also shows that while the purchase price of 3.55 mL of e-liquid was significantly less than a pack of combustibles among the study sample of all 45 countries. When the study countries were split by income group, we found that e-liquid was less expensive than combustibles in HICs while the mean prices of e-liquids and combustible cigarettes in LMICs were not significantly different.

Table 1

Comparison of prices for standard units of tobacco products between country groups

Table 2

Comparison of prices for standard units of tobacco products within country groups

The prices for each product in each country in the sample are displayed in table 3 along with the calculated payback period for a pack-a-day smoker. The median price for a disposable e-cigarette is less than the weighted average price of a pack of combustible cigarettes in Australia, China, Denmark, Sweden, Pakistan and the UK. Only in the UK is the minimum price of a rechargeable e-cigarette lower than the weighted average price of a pack of combustible cigarettes. The payback period is less than 1 week in 16 countries, while in Ireland, Norway and the UK the payback period is less than 2 days. In 13 countries, a smoker would never recoup their investment in purchasing a rechargeable e-cigarette because the price of e-liquid is greater than the price of combustible cigarettes.

Table 3

Tobacco product prices in study countries

Limitations

Inferences from this analysis are limited by the available data. Euromonitor provides only an unscientific sample of e-cigarette product prices, and it is uncertain if the median price for disposable e-cigarettes and e-liquids used in this analysis was representative of all product prices in each country.

Also, our assumptions of unit equivalency may be problematic. For example, rather than basing our assumptions on products’ volume, we might have based them on the amount of nicotine delivered by these products. Further studies on substitution behaviour between combustible and e-cigarette use should focus on what factors matter for product equivalency.

Finally, our estimate of the cost of using rechargeable e-cigarettes over time is an underestimate because the calculation in this paper only captures the initial device purchase. Realistically, users break, lose, upgrade and fix their devices, so actual usage costs are likely to be significantly higher than this estimate. Further, the cheapest rechargeable e-cigarettes were most often, refillable cig-a-like models that cost less to purchase initially than open/tank systems. The e-liquid refill cartridges for rechargeable cig-a-likes were more expensive than bottled e-liquid for open/tank systems for an equivalent volume of liquid. We used the cheaper bottled e-liquid for one e-cigarette cost metric, and the cost of a rechargeable cig-a-like for another cost metric, systematically underestimating the true cost to use a rechargeable e-cigarette. To date, no longitudinal study of individual e-cigarette users has captured the full cost over time of using different kinds of e-cigarette products, but such research would shed light on the point in time if and when using e-cigarettes becomes less expensive than using combustibles.

Discussion

Some scholars and advocates argue that price differences between combustible cigarettes and e-cigarettes could be effective in moving current combustible users to e-cigarettes, which could reduce tobacco-related death and disease.3 ,5 ,19 This paper establishes that a difference in price between combustibles and e-cigarettes already exists, albeit in the opposite direction than these harm reduction proponents are recommending.

These data indicate that the price of combustible cigarettes is less than the comparable unit price of disposable e-cigarettes in almost every country in our sample. We do find that the price of combustible cigarettes was higher than the comparable unit price of e-liquids in HICs, but still lower than e-liquids in LMICs.

Furthermore, the relatively high start-up price of using a rechargeable e-cigarette and high price of disposable e-cigarettes are likely to cause a person with a severely limited income to purchase the most affordable product when they walk into a shop: combustible cigarettes. From the perspective of the poorest current combustible cigarette users, the start-up price of purchasing a rechargeable e-cigarette is a likely barrier to switch, even though for a pack-a-day smoker in many HICs, the extra cost of purchasing a rechargeable e-cigarette could be recovered in 1 week or less. Such effects are observed for combustible cigarette sales—even though purchasing cigarettes by the carton in supermarkets is the least expensive option, the data demonstrate that relatively few smokers purchase their cigarettes in this manner.11 ,20 Further supporting this money-in-the-pocket narrative is the fact that sales of single cigarettes are exceedingly common around the world, even though the per-stick cost of cigarettes sold in this manner is much higher than single packs.21 ,22 Especially in LMICs, or even many low-income consumers in HICs, there is a strong likelihood that the $25 price for an entry-level rechargeable e-cigarette might be out of the typical smoker's reach. Alternatively, some smokers have been observed to prefer purchasing smaller quantities of cigarettes as a method of self-control,23 but we do not yet have sufficient data to evaluate if this behaviour translates similarly towards preferring to spend more money on an expensive rechargeable e-cigarette. Future research will need to examine this dynamic.

Our findings are extremely important and pertinent for policymakers who are in the process of considering implementing excise taxes on e-cigarettes. Some jurisdictions (eg, the US states of North Carolina and Minnesota, as well as Italy15 ,24) have already implemented excise taxes on e-cigarettes. Recently, some market data indicate that prices of e-cigarettes are falling, while cigarette prices continue to rise through manufacturer-driven or tax-driven increases.25 Surveillance efforts to monitor changes in the relative price difference between e-cigarettes and cigarette prices should be established to help avoid the creation of tax policy that inadvertently or otherwise, provides a price advantage to cigarettes over e-cigarettes. For those who advocate for both e-cigarette excise taxes and exploring the possibility of incentivising combustible users to switch to e-cigarettes, the first policy reform priority should be to increase combustible cigarette prices to levels above all e-cigarette products through substantial excise tax increases on combustible products. Once that benchmark is reached, then e-cigarette excise taxes could be implemented to discourage initiation by non-tobacco users, while maintaining lower e-cigarette prices relative to combustible products that would reflect the e-cigarette's potentially lower risks to health.

Where combustible cigarettes are more expensive than e-cigarettes, we would emphasise that excise taxes should not be applied in such a way as to reverse this pattern. If we are to accept that a price floor exists under which we are concerned that devices are inexpensive enough for youth to buy, we ought to first increase the price of combustible cigarettes above that same floor. Only then will it be appropriate to consider if the price of entry to vaping is not sufficiently high to serve as an appropriate deterrent to youth, after which levying excise taxes on vaping materiel would be appropriate.

The best method to levy excise taxes on e-cigarette products remains undetermined. Issues detailing e-cigarette excise tax structures (eg, ad-valorem or specific), tax bases (eg, retail price or wholesale price, nicotine content or e-liquid volume) and enforcement mechanisms remain to be addressed before policymakers can even consider setting up differential tax rates between e-cigarettes and combustibles.

If we are to believe that e-cigarettes and combustible cigarettes are substitute products, any price advantage given to combustible cigarettes is likely to increase smoking relative to what would be the case if e-cigarettes had the price advantage.26 If e-cigarettes are complementary products to combustible cigarettes, then we would expect that raising the price of the less expensive product (combustible cigarettes) would still decrease consumption of both products.

It will be instructive to monitor the how the consumption of e-cigarette use changes differently in the countries with a short rechargeable e-cigarette payback period compared with those countries with a long or infinite payback period. These countries, especially the UK, have become a quasi-natural experiment for establishing the true effect of price differentials on combustible cigarette users’ switching behaviours as well as total nicotine product addiction rates. The swift growth of e-cigarette use in the UK may be related to the fact that combustible smokers who switch to vaping recoup their investment in short order.27 Tracking the effect of this short payback period on the purchase of a rechargeable e-cigarette on the evolution of tobacco consumption patterns will provide invaluable guidance on the proper formation of public policy.

Conclusion

This study presents evidence that e-cigarette prices are generally still higher than prices of combustible cigarettes in much of the world. For policymakers and advocates who aim to persuade combustible cigarette smokers to switch to e-cigarettes, this finding provides a strong logical explaining why some smokers currently resist switching products: switching would hurt their finances. If policymakers wish to explore differentially lower taxation of e-cigarettes seriously, forceful policy action—almost certainly through excise taxation—must raise the price of combustible cigarettes beyond the price of using e-cigarettes. If the price of the products are at least equal, it might make it that much more attractive for combustible cigarette users to switch to e-cigarettes.

What this paper adds

  • Electronic cigarettes are not yet widely subjected to comparable excise taxes as combustible cigarettes.

  • Prior research has not conclusively established if the tax-advantaged position of electronic cigarettes has translated into electronic cigarettes actually costing less to purchase than combustible cigarettes.

  • This paper is the first to compare the cost to purchase disposable and rechargeable electronic cigarettes to combustible cigarettes in a multicountry sample.

  • This paper is the first to compare the price of standardised units of e-liquid and combustible cigarettes.

  • The results of this research establish that in almost every country, it costs a smoker more to switch to using electronic cigarettes than it does for them to continue smoking.

Acknowledgments

The authors would like to thank Zachary Cahn, Kenneth Warner, Thomas Eissenberg and two anonymous reviewers for their thoughtful contributions to the development of the paper's methods, conclusions and directions for future research.

References

Footnotes

  • Twitter Follow Alex Liber at @AlexCLiber

  • Contributors ACL conceived of the study design, performed the data collection and data analysis, and wrote the first draft of the manuscript. JMD edited the manuscript and led the drafting of the Discussion section. MS helped design the data analysis, contributed to the data interpretation and edited the manuscript.

  • Competing interests None declared.

  • Disclaimer The views expressed here are those of the authors and do not necessarily represent the American Cancer Society or the American Cancer Society – Cancer Action Network.

  • Provenance and peer review Not commissioned; externally peer reviewed.

  • Data sharing statement Owing to the contractual restrictions between American Cancer Society and Euromonitor International, the raw data used in the study are not available for sharing.

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