Abigail Sarah Friedman

Electronic Cigarettes: Open Questions in an Evolving Market

Abigail S. Friedman
Department of Health Policy and Management
Yale School of Public Health

Electronic cigarettes entered the U.S. market ten years ago, yet the consequences of this entry remain hotly debated today. Are e-cigarettes a disruptive technology that will reduce use of traditional tobacco products, or a new way to foment addiction that will increase costly tobacco use? As of 2014, 12.6% of U.S. adults had tried an e-cigarette, and just over a quarter of these identified as current users (Delnevo et al., 2016). Considering youths, 2015 data indicate that 16% of high school students had used an e-cigarette at least once in the 30 days before interview, though it is not clear how much of this reflects passing experimentation (Singh et al., 2016). Both the U.S. and U.K. have implemented new regulations and review processes for these products, yet implications for consumer health and the market as a whole remain unclear.

Existing research indicates that e-cigarettes do impose health costs, but are far less damaging than conventional cigarettes, at least in the short run (Pisinger and Døssing 2014; Goniewicz et al., 2014; Farsalinos and Polosa, 2014). One highly publicized but controversial study estimates that e-cigarettes are approximately 95% safer than conventional cigarettes (Nutt et al., 2014). Of course, as cigarette smoking is the leading cause of preventable death in the U.S., responsible for an estimated 28% of U.S. cancer deaths in 2014, the finding that e-cigarettes are less dangerous than conventional cigarettes does not mean that the former product is “safe” (Lortet-Tieulent et al., 2016). Due to a lack of data on e-cigarettes’ long run health effects, the full health implications of e-cigarette use remain unknown.

Assuming current evidence is accurate, this market’s overall health impacts will depend on: (1) how e-cigarettes influence behavior among individuals who would not otherwise use tobacco, and (2) whether e-cigarettes and other tobacco products are substitutes or complements. The evidence varies here: observational and experimental studies often find different results, but few experimental and quasi-experimental analyses exist, limiting opportunities for comparison.

While many observational studies indicate a negative association between adults’ e-cigarette use and smoking cessation in real world settings, this finding could stem from selection bias (Kalkhoran and Glantz, 2016). Evidence from randomized controlled trials suggests that e-cigarettes increase quit rates (Hartmann-Boyce et al., 2016; Bullen et al., 2013; Caponnetto et al., 2013). Comparing smoking cessation at 6 months among individuals who received nicotine-free e-cigarettes, e-cigarettes with nicotine, or coupons redeemable for free nicotine patches, Bullen et al. (2013) find that the nicotine e-cigarette group’s cessation rates are similar to (and, in fact, slightly higher than) those in the nicotine patch group. However, as the difference is not statistically significant at conventional levels and the study lacked a “no intervention” group, it is difficult to draw firm conclusions here. Caponnetto et al. (2013) focus on 300 smokers who did not intend to quit. They find a statistically significant increase in cessation at 52 weeks among respondents assigned to receive e-cigarettes with nicotine as compared to those receiving nicotine-free e-cigarettes. All groups showed reductions in conventional cigarettes used per day over time. These findings are more consistent with the hypothesis that e-cigarettes and conventional cigarettes are substitutes than complements, at least among adults. Still, a larger evidence base is needed.

Considering youth behavior, several observational studies have indicated that adolescents who use e-cigarettes are more likely to try conventional cigarettes (e.g., Primack et al., 2015, Leventhal et al., 2015). However, given endogeneity concerns, these findings do not necessarily reflect a causal relationship between e-cigarette and cigarette use. Youths who are interested in tobacco use may face incentives to experiment with the least risky products first, which would generate a trend towards observing e-cigarette use prior to conventional cigarette use in the data, regardless of any relationship between the products themselves.

Two quasi-experimental studies address the endogeneity concern by focusing on adolescents’ smoking responses to e-cigarette access restrictions. Both find that, prior to 2014, state bans on e-cigarette sales to minors yielded relative increases in conventional cigarette use among adolescents (Friedman, 2015; Pesko et al., 2016). Specifically, states that implemented these bans saw increases in youth smoking of about 0.8 to 0.9 percentage points following implementation, relative to the trend in states without bans. Assuming that such bans did reduce teens’ access to e-cigarettes, these findings suggest that conventional and electronic cigarettes are substitutes, at least among this age group pre-2015. These results may or may not generalize to more recent behavior, as both products and marketing strategies have evolved.

The interpretation of this evidence has differed rather noticeably between the U.K. and the U.S. A report released by the Royal College of Physicians in early 2016 concluded that “the availability of e-cigarettes has been beneficial to UK public health” and that the products offer a promising path to reduce the mortality and morbidity burden of tobacco use (Royal College of Physicians, 2016). The U.S., on the other hand, has been more focused on potential risks, particularly towards children and individuals who might not have used tobacco otherwise (Tavernise, 2016). Indeed, surveys asking U.S. and U.K. adults about their risk-beliefs for e-cigarettes relative to conventional cigarettes suggest that the percent of adults who believe that e-cigarettes are less harmful than conventional cigarettes is much lower in the U.S. (38% in 2014) than in the U.K. (54% in 2014) (Viscusi, 2016; Action on Smoking and Health, 2016).

Still, the two countries’ policy responses have been rather similar, perhaps due to the fact that many of the U.K.’s e-cigarette regulations stem from a European Union directive (MHRA, 2016). To date, both countries ban e-cigarette sales to minors, require product warning labels, and are currently phasing in a review process for approving e-cigarettes and e-liquids in order to ensure product safety and quality (MHRA 2016; FDA 2016). A notable policy difference is that the U.K. also prohibits advertising “e-cigarettes and e-liquids which contain nicotine and which are not licensed as medicines” through “TV, radio, print, online and other electronic media” (Committee of Advertising Practice, 2016). While neither country has banned flavors in e-cigarettes, a preliminary version of the F.D.A. regulations did include such a ban. This was removed during the interagency review process (Clarke, 2016).
To a great extent, e-cigarettes’ long run impact on public health may depend on how the industry responds to evolving regulation, an area that has been almost entirely overlooked by the current literature. While e-cigarettes were originally introduced by new firms, independent from the established, large tobacco companies, the latter started entering this arena in the U.S. during 2012, beginning with Lorillard’s acquisition of blu eCigs that spring. The industry entered a period of rapid expansion shortly thereafter. Spending on e-cigarette advertising grew precipitously, with the entire 2011-to-2012 increase accounted for by blu eCigs (Kim, Arnold, and Makarenko, 2014). In 2013, that one brand’s ads accounted for over 80 percent of youth exposure to televised e-cigarette advertising (Duke et al., 2014). That summer, the two largest U.S. tobacco companies, Reynolds American and Altria (via NuMark, a subsidiary) began test marketing Vuse and Mark 10, their first e-cigarette products (Tobacco Control Research Group, 2014). By mid-2015, the top three brands alone—Vuse, blu Cigs, and Logic, all owned by large tobacco companies—accounted for over two-thirds of the U.S. e-cigarette market share (Craver, 2015). In less than four years, the industry transitioned from a large number of independent firms, to a highly concentrated market dominated by the tobacco industry.

The FDA’s new regulations may hasten this trend. Some have contended that the high cost of the new premarket approval process (required for e-cigarettes introduced after February 15, 2007) will force smaller firms and vape shops out of the market (Reuters, 2016).

An e-cigarette market concentrated among larger tobacco companies may pose a very different concern than the more diffused pre-2012 market. Specifically, companies marketing both conventional and electronic cigarettes will internalize the costs and benefits of between-product spillovers in consumer demand, including those resulting from the products’ shared addictive substance (i.e., nicotine). Profit-maximizing behavior could look quite different in this context than for e-cigarette-only firms. To the extent that such spillovers can be encouraged through product positioning or marketing (e.g., advertising a particular brand of conventional cigarettes as the more “adult” version of a corresponding e-cigarette brand), large tobacco companies in the e-cigarette market may have incentives to act in a way that runs counter to public health.

On the other hand, to the extent that regulations make e-cigarettes more profitable than conventional cigarettes (e.g., due to the latter product’s high tax rate), the large tobacco companies’ entry into the e-cigarette market could offer a novel opportunity. Policymakers may be able to negotiate more restrictive policies for conventional cigarettes in exchange for more lenient e-cigarette regulations.
If the tobacco and e-cigarette lobbies are willing to support such tradeoffs, the supply side of this market could be an agent to shift consumers away from the riskiest tobacco products.

More work is needed to understand the new regulations’ likely effects on supplier behavior, including how firm-level incentives differ between different types of e-cigarette producers. Concurrently, established findings on consumer behavior may need to be updated as this market’s firms, specific products, and regulations evolve. To the extent that research can guide policymakers towards regulations that bring tobacco companies’ profit maximizing strategies in line with public health interests, work in this arena has the potential to, quite literally, save lives.


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