Price Responsiveness and Brand Switching in Montenegro’s Cigarette Market [Working Paper Series]

This Working Paper was written by the Institute for Socio-Economic Analysis (ISEA) in Montenegro. The working paper assesses own- and cross-price elasticities of cigarettes across market segments. Using a monthly dataset on brand-level sales and prices per pack from 2010 to 2024, the researchers estimate that own-price elasticity of cigarettes is between -0.61 and -0.66. Considering each market segment individually shows that elasticities for the mid-priced brands are the highest, at -0.819, followed by the economy brands, at -0.711, and premium brands, at -0.632. Furthermore, the research finds downward substitution as a 10% price increase in the mid-price segment would increase demand for economy brands by 2.1%, and a 10% increase in premium brand prices would increase demand for mid-priced brands by 4.21%. The working paper concludes with recommendations for policy makers to strengthen tobacco taxes and consider setting a minimum price for cigarettes to discourage substitution.

A Policy Brief based on this working paper can be found here.