Price elasticity of illegal versus legal cannabis: a behavioral economic substitutability analysis

BACKGROUND AND AIMS

The evolving legal status of cannabis world-wide necessitates evidence-based regulatory policies to minimize risks associated with cannabis misuse. A prominent concern is the impact legalization may have on the illegal cannabis market, including whether illegal cannabis will serve as a substitute for legal cannabis. Empirical data on this issue are virtually non-existent. This study used behavioral economics to investigate substitutability of legal and illegal cannabis in legalized catchment areas in the United States.

DESIGN

A substitution-based marijuana purchase task assessed estimated cannabis consumption from concurrently available legal (a dispensary) and illegal (a dealer) sources. Prices of the two options were reciprocally either held constant ($10/gram) or escalated ($0-$60/gram).

SETTING

US states with legalized recreational cannabis.

PARTICIPANTS

Adult cannabis users who were at least 21 years old (n = 724; mean age = 34.13; 52% female; 74% Caucasian) were recruited using online crowdsourcing.

MEASUREMENTS

Mean consumption values were used in demand curve modeling to generate indices of price sensitivity and elasticity. Differences in demand indices were compared using extra sums-of-squares F-tests.

FINDINGS

Both legal and illegal fixed-price cannabis options had significant positive cross-price elasticities (Ps < 0.001), indicating that higher prices motivate substitution irrespective of legality. However, the presence of a legal alternative had a substantially greater effect on consumption and elasticity of illegal cannabis (∆_elasticity  = 0.0019; F_(1,37)  = 160, P < 0.0001) than the presence of an illegal alternative on demand for legal cannabis (∆_elasticity  = 0.0002; F_(1,37)  = 48, P < 0.0001), indicating asymmetric substitution. Demand for legal cannabis was significantly greater than for illegal cannabis (P < 0.0001).

CONCLUSIONS

Cannabis users treat legal cannabis as a superior commodity compared with illegal cannabis and exhibit asymmetric substitutability favoring legal product. Cannabis price policies that include somewhat higher consumer costs for legal cannabis relative to contraband (but not excessively higher costs) would not be expected to incentivize and expand the illegal market.

Is there differential responsiveness to a future cigarette price increase depending on adolescents' source of cigarette access?

We examined whether the responsiveness to an increase in cigarettes price differed by adolescents' cigarette acquisition source. We analyzed data on 6134 youth smokers (grades 7-12) from a cross-sectional survey in Korea with national representativeness. The respondents were classified into one of the following according to their source of cigarette acquisition: commercial-source group, social-source group, and others. Multiple logistic regressions were performed to estimate the effects of an increase in cigarette price on the intention to quit smoking on the basis of the cigarette acquisition source. Of the 6134 youth smokers, 36.0% acquired cigarettes from social sources, compared to the 49.6% who purchased cigarettes directly from commercial sources. In response to a future cigarette price increase, regardless of an individual's smoking level, there was no statistically significant difference in the odds ratio for the intention to stop smoking in association with cigarette acquisition sources. The social-source group had nonsignificant, but consistently positive, odds ratios (1.07-1.30) as compared to that of the commercial-source group. Our findings indicate that the cigarette acquisition source does not affect the responsiveness to an increase in cigarette price. Therefore, a cigarette price policy is a comprehensive strategy to reduce smoking among youth smokers, regardless of their source.

Price and distribution policies in healthcare marketing in Romania

There is a principle similar to the theory of exchange in the marketing of health services, meaning that what is delivered to the target market (i.e. the beneficiaries) must be equal to or greater than what is to be received (i.e. the price). The price level in the marketing mix is influenced by how the consumer perceives the respective medical service and is quantified in the profit and the turnover of the organization respectively. The cost of the medical act as a whole is the value of all the tangible and intangible variables associated with it, and the planning, distribution and promotion of the product must be taken into account in the price setting.