![]() Between 20, the state decided against increasing prices, which resulted in reduced profits for the industry. This pattern varies slightly in China, which is a state-owned tobacco monopoly market, and the state has a pivotal role in setting both prices and taxes. Therefore, tax increases are mostly absorbed by the tobacco companies for brands across all price categories. Their primary goal appears to be expanding their markets as opposed to increasing their profits. Research in LMICs has highlighted that tobacco companies in these countries deliberately chose to undershift their products. In contrast to HICs, undershifting is a more commonly used tactic in LMICs, as witnessed in South Africa, 13 Mexico, 14 15 Indonesia, 16 Turkey, 17 Thailand, 18 Bangladesh, 19 Pakistan, 20 and Mauritius. This pattern has been observed in the UK, 4 5 Ireland, 6 and several other European countries 7 the US 8 9 10 and New Zealand. This results in an increasing price gap between premium and budget products. In many HICs, the TI persistently increases tobacco prices by overshifting tax increases on on premium products (those at the higher end of the market) but undershifting on ‘budget’ products (in the lowest price segments) in order to keep their prices low. This is one of the most frequently employed pricing strategies of the industry and has been identified in multiple countries worldwide.ĭifferential shifting of taxes is the most frequently employed strategy of the tobacco industry (TI). In this scenario, the producers bear at least part of the cost of the tax increase. Undershifting: occurs when the industry absorbs tax increases (to some extent), thus delaying/preventing the intended tobacco price rises.The burden of the tax increase (and more) falls entirely on the consumers rather than the producers. Overshifting: takes place when the TI increases the price of products above that required by the tax increase.Instead of fully passing on the taxes on tobacco products to consumers, the industry may decide to shift taxes to different brands and/or different tobacco products: Here we describe each strategy with examples from HICs and LMICs. Figure 1: Tobacco Industry Pricing Strategies (TCRG original research)
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