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The Impact of Advertising Regulation on Industry - The Cigarette Advertising Ban of 1971

Author

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  • Shi Qi

    (Florida State University)

Abstract
This paper develops and estimates a dynamic oligopoly model of advertising in the cigarette industry. With this estimated model, I evaluate the impact of the 1971 TV/Radio advertising ban on the cigarette industry. A puzzling fact about this ban is that, while industry advertising spending decreased sharply immediately following its passage, spending then recovered and actually exceeded its pre-ban level within five years. While simple static models cannot account for such a turn of events, the rich dynamic model developed in this paper can. This paper exploits previously confidential micro data, now made public through tobacco litigation. In addition, the paper uses a new concept of Oblivious Equilibrium to handle intractable state space and accelerate equilibrium computation.

Suggested Citation

  • Shi Qi, 2011. "The Impact of Advertising Regulation on Industry - The Cigarette Advertising Ban of 1971," 2011 Meeting Papers 868, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:868
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    Cited by:

    1. Michael Cohen & Rui Huang, 2012. "Corporate Social Responsibility for Kids’ Sake: A Dynamic Model of Firm Participation," Working Papers 12, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    2. Yuqing Zheng & Chen Zhen & Daniel Dench & James M. Nonnemaker, 2017. "U.S. Demand for Tobacco Products in a System Framework," Health Economics, John Wiley & Sons, Ltd., vol. 26(8), pages 1067-1086, August.
    3. Linli Xu & Jorge M. Silva-Risso & Kenneth C. Wilbur, 2018. "Dynamic Quality Ladder Model Predictions in Nonrandom Holdout Samples," Management Science, INFORMS, vol. 64(7), pages 3187-3207, July.
    4. Sylvia Hristakeva & Julie Holland Mortimer, 2023. "Price Dispersion and Legacy Discounts in the National Television Advertising Market," Marketing Science, INFORMS, vol. 42(6), pages 1162-1183, November.
    5. Cohen, Michael & Huang, Rui, 2012. "Corporate Social Responsibility for Kids’ Sake: A Dynamic Model of Firm Participation," Working Paper series 148347, University of Connecticut, Charles J. Zwick Center for Food and Resource Policy.
    6. Galinato, Gregmar I. & Olanie, Aaron Z. & Yoder, Jonathan K., 2017. "The Trade and Health Effects of Tobacco Regulations," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(3), September.
    7. Ron N. Borkovsky, 2017. "The timing of version releases: A dynamic duopoly model," Quantitative Marketing and Economics (QME), Springer, vol. 15(3), pages 187-239, September.
    8. Pierre Dubois & Rachel Griffith & Martin O’Connell, 2018. "The Effects of Banning Advertising in Junk Food Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 396-436.
    9. Hong Liu & John A. Rizzo & Qi Sun & Fang Wu, 2015. "How Do Smokers Respond to Cigarette Taxes? Evidence from China's Cigarette Industry," Health Economics, John Wiley & Sons, Ltd., vol. 24(10), pages 1314-1330, October.
    10. Qiang Liu & Sachin Gupta & Sriram Venkataraman & Hongju Liu, 2016. "An Empirical Model of Drug Detailing: Dynamic Competition and Policy Implications," Management Science, INFORMS, vol. 62(8), pages 2321-2340, August.
    11. Andrew Sweeting, 2015. "A Model of Non-Stationary Dynamic Price Competition with an Application to Platform Design," Working Papers 15-03, NET Institute.

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