Advertising Restrictions and Market Concentration in the Cigarette Industry: A Cross-Country Analysis

Abstract

There has been a large increase in the adoption of tobacco advertising restrictions worldwide over the last two decades. Much of the literature studies their direct effect on cigarette demand. This paper investigates the indirect effect of advertising restrictions by evaluating the effect of the policies on the degree of concentration in the tobacco market. By using the variation between countries in timing of adoption of advertising restrictions, I estimate difference-in-difference models to examine the effect of an advertising ban on market-concentration, as measured by HHI. I find that advertising bans lead to an increase in market-concentration: HHI increased by 0.06 points for countries that adopted a ban between 2001 and 2017 conditional on trade and socio-economic characteristics, representing a 13% increase with respect to the mean (0.44). The effect is higher in developing countries (0.08 points increase). Further, I find that ‘comprehensive’ restrictions have a stronger impact on concentration, and ‘limited’ restrictions have little or no impact. These findings point to an important trade-off for policymakers: on one hand, advertising restrictions are likely to reduce consumption of cigarettes; on the other hand, due to an increase in market-concentration, they may be giving more power to tobacco companies.