Beyond taxation: how price discount restrictions influence cigarette price competition in Indonesia

Background Price discount is a common strategy adopted by cigarette producers. The effectiveness of tax measures in discouraging smoking is, however, lessened if price discounts remain unregulated. Despite the Indonesian government having monitored retail transaction prices (RTP) since 2009, there was no restriction on the extent of price discounts. In 2018, Indonesia began to implement price-discount limitation, which restricts the price discount to a maximum of 15% of the banderol price and also maintains further monitoring to enforce the regulation. Objectives To examine whether the monitoring and enforcement approach can lessen the availability of discounted prices for cigarette sales across cigarette brands in Indonesia. Method Using Panel Poisson regression with an exposure, we analyse survey data spanning from 2012 to 2023 on three of the most popular cigarette types in Indonesia: Machine-made kretek (SKM), Machine-made white (SPM) and Hand-rolled kretek (SKT) to determine the incidence rate where a brand is sold for less than 85% of its banderol price despite the implementation of the price-discount limitation policy in 2018. Findings The price discount limitation policy led to a significant decline in the incidence rate of price discount. The incidence rate by mainstream brands has fallen by more than 50%, compared with their counterparts. The RTP-to-banderol price ratio was also, on average, 0.305 points higher after the policy, with no difference between those two groups. Conclusions Introducing limitations on price discounts, consistent monitoring of point-of-sale prices and substantial punishment lead to increased tobacco prices for both mainstream and local brands.