Cigarette Advertising Regulation Today: Unintended Consequences and Missed Opportunites?

John E. Calfee, Univ. of Maryland and Federal Trade Commission
ABSTRACT - Current regulation of cigarette advertising, like past regulation, may unintentionally harm smokers by suppressing health-related information that otherwise would be produced by competitive forces. Advertising on carbon monoxide, new combinations of tar and nicotine, and the problem of smoker  "compensation" that now plagues FTC tar and nicotine measurements could provide useful information and tend to remind smokers of health hazards that are not suggested by current advertising.
[ to cite ]:
John E. Calfee (1987) ,"Cigarette Advertising Regulation Today: Unintended Consequences and Missed Opportunites?", in NA - Advances in Consumer Research Volume 14, eds. Melanie Wallendorf and Paul Anderson, Provo, UT : Association for Consumer Research, Pages: 264-268.

Advances in Consumer Research Volume 14, 1987      Pages 264-268

CIGARETTE ADVERTISING REGULATION TODAY: UNINTENDED CONSEQUENCES AND MISSED OPPORTUNITES?

John E. Calfee, Univ. of Maryland and Federal Trade Commission

[The views expressed here are the author's and not necessarily those of Federal Trade Commissioners or other members of the FTC staff.]

ABSTRACT -

Current regulation of cigarette advertising, like past regulation, may unintentionally harm smokers by suppressing health-related information that otherwise would be produced by competitive forces. Advertising on carbon monoxide, new combinations of tar and nicotine, and the problem of smoker  "compensation" that now plagues FTC tar and nicotine measurements could provide useful information and tend to remind smokers of health hazards that are not suggested by current advertising.

INTRODUCTION

The cigarette market has provided a natural laboratory for studying the effects of advertising and advertising regulation. While cigarettes themselves have never been regulated (by law they are neither food nor drug nor consumer product), information about cigarettes has been regulated extensively by the Federal Trade Commission (FTC) and by legislation. Some of the landmark regulatory measures of the past probably had unintended adverse consequences. Particularly open to criticism are the FTC's 1955 Cigarette Advertising Guides and 1960 ban on tar and nicotine advertising (both measures are described below), and the 1970 ban on TV and radio advertising.

A natural question is whether cigarette advertising regulation today, which is much different from that of the 1950s and 1960s, also has important unintended consequences. The purpose of this article is to raise the possibility that regulatory distortion continues to be important in the cigarette market, and that "better" competition, primarily through advertising but also in terms of changes in cigarettes themselves, may be possible.

BEFORE 1964

Today's cigarette advertising and advertising regulation can usefully be viewed against the backdrop provided by events of several decades ago. Before 1950, cigarettes were widely considered to be an outstanding example of a product that reached a mass market primarily through advertising. Then in the 19' 05 came highly publicized reports that cigarettes caused cancer. Two fascinating episodes followed. In the early 1950s, market incentives spontaneously produced "fear advertising," in which smaller firms attempted to exploit smokers' fears in order to induce smokers to switch brands. A notable apparent by-product was a reduction in overall cigarette sales. A few years later, a vigorous "tar derby" arose as a nearly instantaneous response to advice from health experts to lower tar intake and public criticism of filter cigarettes (Calfee 1985, 1986).

"Fear advertising" and the tar derby were both stopped by FTC intervention. The FTC's tools were the 1955 Cigarette Advertising Guides, which prohibited all references to the physical effects of smoking (except pleasure), unless the claims were based on scientific proof, and the 1960 "voluntary" industry-wide ban on tar and nicotine advertising, which prohibited all tar and nicotine claims that were not based on epidemiological ewidence of the implied health effects of reduced tar and nicotine. In both cases, the FTC's legal argument was essentially that claims not founded on persuasive scientific ewidence should be prohibited.

The main consequences of these interventions were probably not intended by the FTC. The 1955 Guides left cigarette ads devoid of references to possible adverse health effects. This was probably a factor in the industry's rapid recovery in 1955 from the unprecedented sales drops of 1953 and 1954, and is widely thought to be a major reason for the industry's continued vigor today in the face of apparently overwhelming ewidence of the deadly effects of smoking. The 1960 ban on tar and nicotine advertising nearly halted the rapid decline in the tar content of cigarettes, a decline that later epidemiological studies would demonstrate was reducing the incidence of lung cancer (Lee and Garfinkel 1981, Lubin, et al. (1984), Participants 1985, Peto 1985). Thus when the FTC prohibited first health claims, and then tar and nicotine claims, on the grounds that ewidence of long- term health effects did not exist, the Commission apparently committed a classic regulatory error. It concentrated only on the harm that would ensue if the implied health claims were false, while failing to give due weight to the benefits of the advertising if the claims were true or if the claims tented to improve consumer information and choices.

CIGARETTE ADVERTISING TODAY

The events of the 1950s and 1960s illustrate some of the possibilities inherent in the cigarette market, and demonstrate the ease with which the unintended effects of regulation can counteract, even overwhelm, the intended effects. Much has changed since the early 1960s. The vast political fallout from the 1964 Surgeon General's report on smoking and health (U. S. Public Health Service 1964) included health warnings on cigarette packages (required by legislation in 1965) and an end to advertising that contained testimonials or explicit appeals to young persons (both prohibited by a successful industry "self-regulation" code in 1965 that was clearly motivated by fear of legislation). In 1966, the FTC changed its mind on allowing tar and nicotine advertising, and in 1967, began to produce its own ratings, which the major cigarette companies later pledged (in 1970) to include in all advertising (FTC 1981, p. 4-3). Radio and TV advertising was banned by Congress in 1970, only to be followed by the complaint that the unintended effect of the ban (elimination of anti-smoking messages on TV, which had been provided under the fairness doctrine) outweighed the intended effect of suppressing consumption (Hamilton 1972, Warner 1979, Schneider, Benjamin, and Murphy 1981). Health warnings were extended from labels to advertisements in 1972 through FTC action (FTC 1981) and later by legislation (Comprehensive Smoking Education Act of 1984).

The relationship between health information and cigarette advertising has also changed. In the 1950s major new health information quickly and profoundly changed cigarette advertising, an example being the tar derby of 1957-59. Today, changes in health information do little to change advertising, or even the cigarette market itself. Even as product information continues in a state of turmoil -- new ewidence arrives almost monthly attributing yet more health problems to smoking -- the market itself remains peaceful (apart from legislative conflict). Thus for nearly twenty years cigarette advertising has proceeded on a remarkably steady course, characterized by a persistent, and oft criticized, emphasis on the joys of smoking (FTC 1981, American Medical Association, Board of Trustees (1986), along with vigorous competition for lower FTC tar and nicotine ratings. Health claims have been virtually non-existent in recent decades (except to the extent that claims of law tar or nicotine are interpreted as health claims).

Thus the two dominant aspects of cigarette advertising today are, first, competition on tar and nicotine content, and second, lack of competition in the form of more explicit health-related advertising, including advertising on ingredients other than tar and nicotine. Both these features of modern cigarette advertising merit a close look, and both may reveal unintended effects and missed opportunities. I offer here a limited, selective view.

TAR AND NICOTINE COMPETITION TODAY

Tar and nicotine advertising can be seen as having two effects. One is to inform consumers of tar and nicotine content, thus guiding smokers to reduced-yield cigarettes and providing manufacturers an incentive to produce such cigarettes. A second effect, more subtle, is to remind smokers that cigarettes are dangerous -- else why reduce tar and nicotine at all? I concentrate in this section on the first, more obvious role of providing information on tar and nicotine yield.

The FTC's purpose in obtaining an industry agreement to include FTC tar and nicotine ratings was to make smokers more aware of the health trade-offs and to foster competition in reducing yield (FTC 1966, 1967). That purpose has largely been met, at least with respect to tar and nicotine content. Tar and nicotine information forms a major focus in much cigarette advertising. Sales-weighted tar and nicotine content, by FTC measures, declined by more than one-third between 1970 and 1981 (when the FTC last calculated sales-weighted averages) and has probably declined substantially since then with the advent of lower-tar brands (FTC 1984b, 1985). The health benefits of lower-tar cigarettes have been substantial. Declines in tar in the U.S. and in other countries (which have generally lagged behind the U.S. in this respect) have been associated with substantial declines in cancer rates (Lee and Garfinkel 1981, Lubin, et al. 1984, Participants 1985, Peto 1985). Thus by some measures the FTC program met with great success, although this success was undoubtedly delayed by the FTC ban on tar and nicotine advertising during the early 1960s, and one could argue that the spontaneous tar derby of 1957-59 demonstrated that the FTC tar and nicotine program mainly duplicated natural market forces.

Recent discussion of reduced tar cigarettes, however, has focussed on the growing flaws in the FTC's system. The problem is an apparent disparity between what the FTC smoking machines inhale and what real smokers inhale. The smoking machines have remained essentially unchanged since their inception in 1967, while the technology for reducing cigarette yields has evolved substantially. Such of the recent decline in rated tar and nicotine content is due to the popularity of filters that use holes, channels, or porous coverings to dilute the smoke so as to produce very small amounts of tar and nicotine in the standard measuring devices. Smokers of these low-yield cigarettes have been observed to "compensate," that is, smoke differently so as to ingest more tar and nicotine than the smoking machines do. Compensation takes several forms: inhaling deeper, smoking closer to the butt, puffing more frequently (some brands improve their ratings simply by burning faster, since the FTC machines smoke at a constant rate,) leaving a shorter butt, and (depending on filter type) blocking the holes or channels with the fingers or lips.

FTC Smoking Machines and Barclay Cigarette Advertising

Compensation does not necessarily affect equally rated brands the same way. Thus ratings and compensation can affect competition. A particularly striking example arose with the introduction in 1981 of Barclay cigarettes by Brown and Williamson. Barclay's innovative filter used "channels" along the outside of the filter to help dilute smoke and thus yield very low levels of tar and nicotine. Objections from competitors (Barclay was a remarkably successful new brand) led to an FTC staff investigation. The staff concluded that the Barclay filter in effect fooled the FTC's testing machines, because human lips would crush the channels or occlude the ends of the channels, whereas the machines did not. The FTC therefore sought to revise its ratings for Barclay, and a legal battle ensued. The Commission eventually obtained an injunction preventing use of the FTC figures in ads for Barclay (FTC v Brown and Williamson 1983, 1985).

While the Barclay case was under appeal, the Commission solicited public comments on ways to change the FTC's testing method to take into account some of the difficulties posed by newer types of filters (Wall Street Journal 1985, Antitrust and Trade Regulation Reporter 1985.) After the federal appeals court gave the Commission most of what it wanted, Brown and Williamson and the FTC staff agreed on a modification of both the Barclay filter and the claims made for it, although the new tar and nicotine claims still are not derived from measurements on the standard FTC smoking machines. In the meantime, the fate of the smoking machines remains unsettled. The FTC has not yet taken action to modify the machines, and the industry apparently has provided no convincing proposal for modifications. Thus the problem of smoking machines and filters remains unresolved for the moment.

The "Compensation" Problem

The Barclay episode is symptomatic of the larger problem of smoker compensation and its effects on the validity of FTC ratings. A rapidly expanding literature (see survey in U. S. Public Health Service 1984, chapter 6) has yielded mixed results on the nature and extent of compensation. These laboratory findings are undoubtedly sensitive to research design and the type of human subjects used. It is clear, however, that the disparity between FTC measures and actual ingestion of tar, nicotine, and carbon monoxide can be substantial. For example, Kozlowski, et al. (1980) found that hole blocking can increase tar and nicotine yields by 59-293a. Gori and Lynch (1983) found that differences in FTC nicotine ratings of up to seven-fold produced only 30-40* differences in nicotine intake. Benowitz, et al. (1983 and 1985) found almost no relation between FTC measurements and actual ingestion of nicotine for a set of low-yield brands, but did find a substantial reduction in ingestion for "ultralow" nicotine brands, that, as of this date, command negligible market share. Kozlowski (1981) found that even such a simple matter as puffing faster than the FTC's smoking machines can increase tar and nicotine yield by more than 50%.

As the Barclay episode illustrated, the effects of compensation are not always proportional (that is, two brands with identical ratings may induce different degrees of compensation), so that rankings and relative ratings may be changed. Hoffman, et al. (1983) found different compensation for different types of filters, with especially great compensation (particularly for CO) for filters with longitudinal channels. Wald, et al. (1980) found different effects for ventilated and unventilated filters.

Compensation is usually incomplete, so there may remain a two or three-fold difference in yield between high- and low-yield brands. For example, Wald, et al. (1980), looking only at compensation via inhalation rather than by hole-blocking and other means, estimated that tar intake is reduced by about half the measured reduction, and concluded that smokers of low-yield cigarettes still get less tar and nicotine. Rickert, et al. (1983) concluded that compensation does not materially affect ratings with respect to tar intake. (Also see Stepney 1981 and the review in Participants 1985). Compensation may not be the same for all ingredients. Hoffman, et al. (1983) found that with Barclay-style filters compensation was much greater for carbon monoxide than for tar and nicotine. A recent conference on the future of low-yield cigarettes concluded that, as a rule of thumb, compensation causes the reduction in tar intake to be only about half the reduction indicated by FTC measures, whereas for nicotine and carbon monoxide, compensation eliminates most of the FTC-measured reduction in yield (Participants 1985, pp. 2, 3). Nonetheless, some researchers have found low-yield brands effective in reducing carbon monoxide intake (Prue, Krapfl, and Martin 1981).

All this has led to considerable debate over whether public policy should continue to encourage sales of low-yield cigarettes. Almost everyone seems to agree that if the choice is between smoking low- or high-yield cigarettes, the choice should be low-yield (Kozlowski 1985, Participants 1985). But the existence of low-yield cigarettes may keep some persons from quitting and may induce others to smoke who otherwise would not try (Silverstein, et al. 1980), and the effect of low-yield cigarettes on heart disease has yet to be demonstrated (Participants 1985, p. 1112; U.S. Public Health Service 1983, pp. 121122). For these reasons, expert opinion of public policy toward low-yield cigarettes promises to remain unsettled in at least some minds. For several points of view, see Wynder and Hoffman (1975), Gori and Lynch (1978), Marx (1978), Gart and Schneiderman (1979), Wynder (1980a and 1980b), Kozlowski (1982), Lenfant (1983). One thing that is clear, at any rate, is that a consensus in favor of doing away with FTC measurements is not close to coming about (Participants 1985, Kozlowski 1985, Peto 1985).

Competition Over the Benchmark Itself

The problem of FTC ratings could conceivably be alleviated by more comprehensive advertising in which sellers compete over the benchmark itself. Whether this will ever happen, or how, is a matter of speculation. Successful brands that induce compensation by smokers are likely to come under attack from brands that do not induce compensation. An important question is whether the attack would come through the market (for example, by counter-advertising) or through appeals to regulators or the courts. The Barclay episode is a case in point. The FTC case was prompted by complaints from the two largest competitors. In Europe and other western nations, where there are no FTC measurements, the battle has been joined through a number of means -- appeals to regulators, appeals to the entities that publish tar and nicotine measures, proposed legislation, and private litigation alleging deceptive advertising -- but direct market methods may be rare or non-existent. This suggests that firms are willing to fight over tar and nicotine benchmarks when the stakes are large, but not necessarily with tools afforded by the marketplace.

An alternative form of competition would be the use of other testing laboratories. In the tar derby of the late 1950s, all advertising relied upon recognized third-party tests (generally the results published in Reader's Digest or Consumer Reports). This apparently worked well for that brief period. There is every reason to believe that private testing laboratories would be more flexible than one run by a federal bureaucracy, and competition among laboratories might ensure that useful changes were adopted.

OTHER POSSIBILITIES FOR HEALTH-RELATED ADVERTISING

I noted earlier that advertising of reduced tar and nicotine carries dual messages, suggesting that the advertised brand is safer, but also that cigarettes are inherently unsafe. The two messages would have quite different effects. The first, brand-specific message tends to divert smokers to low-tar brands, while the second, market-wide message tends to discourage smoking in general. An interesting question is how strong the second effect is. The answer is of course unknown, and I do not propose to attempt an answer here. But it seems possible that at present the negative effect on market-wide sales is small. In current tar and nicotine ads, the health messages are never more than suggestions, for the ads never explicitly mention health or specific illnesses.

I consider here the possibility of ingredient claims beyond current tar and nicotine advertising. These possibilities are important because they suggest the substantial changes in cigarette composition and consumer awareness such advertising could bring, and tend to raise with greater force the regulatory issues associated with explicit health claims. I consider first the possible claims themselves, and then discuss briefly the interesting question of how current FTC advertising law might apply to such claims.

New Possibilities for Ingredient Advertising

The problems in tar and nicotine advertising today extend beyond the compensation phenomenon. Measured tar and nicotine yield are highly correlated across brands, a situation that has little basis in either health or the technology of cigarette production. Also, the market ignores other smoke constituents, particularly carbon monoxide, which could be as important as tar and nicotine. With advertising concentrating only on tar and nicotine, generally as a pair, product development has not proceeded independently upon the three dimensions of tar, nicotine and carbon monoxide. With these facts- as background, I look here at two possibilities: carbon monoxide advertising, and "decoupled" tar and nicotine advertising.

Carbon monoxide advertising: Carbon monoxide is notable for its absence from cigarette advertising. At one time this would have been unexceptional, for the early landmark government reports on smoking and health did not indict carbon monoxide at all (Royal College 1962, U. S. Public Health Service 1964). But as ewidence connecting smoking with heart disease accumulated, attention turned to carbon monoxide as a possible cause. The FTC began measuring carbon monoxide in 1981, but the carbon monoxide numbers are not part of the voluntary agreement to advertise tar and nicotine, and so far as I know, carbon monoxide advertising has never occurred. The lack of explicit carbon monoxide information in advertising could be significant for two distinct reasons. For some kinds of low-tar cigarettes, particularly those for which smoker compensation is significant, carbon monoxide yield may not correlate closely with other ingredients; thus explicit advertising of carbon monoxide yield would aid smokers in changing carbon monoxide intake. In addition, advertising that focusses on an ingredient that clearly does not cause lung cancer would probably tend to focus attention on other illnesses such as heart disease. This has been noted by public health experts (Participants, p. 1113) as part of their larger concern with too narrow a reliance on tar as a measure of risk (U.S. Public Health Service 1981, p. vii).

One reason for the lack of carbon monoxide advertising may be a lack of stimulus. When tar and nicotine advertising hit the market with overwhelming vigor in 1957, it did so under the stimulus of widely publicized expert pronouncements that reduced tar cigarettes would probably be safer. This made it possible for cigarette advertisers to talk about tar levels without having to educate (or scare) the public about the health implications. No such stimulus has occurred in the case of carbon monoxide. Even the new rotational warnings required on labels and in advertising are ambiguous: the carbon monoxide warning simply says, "SURGEON GENERAL'S WARNING: Cigarette Smoke Cont-ins Carbon Monoxide," without stating that carbon monoxide causes any particular disease. Thus the new warning messages may not provide a strong stimulus for competition in carbon monoxide levels.

An adventurous advertiser of a low carbon monoxide cigarette could take on the task of educating the public about the dangers of carbon monoxide. The advertiser would benefit other low carbon monoxide brands, of course, but the advertising could still be highly effective if it tapped the natural fear of a gas widely known to be highly toxic. A problem with such an approach, however, stems from the same circumstances that presumably led to the ambiguous new label warning on carbon monoxide. Apparently there does not exist conclusive medical proof that the carbon monoxide in cigarette smoke is harmful for the average smoker. Coronary heart disease is numerically the most serious illness associated with smoking and is presumably the main illness that would be connected with carbon monoxide. But recent reviews by the Surgeon General of smoking and heart disease noted a lack of consensus on whether and how carbon monoxide leads to heart disease (U.S. Public Health Service 1981, pp. 10 and 125-126, and U.S. Public Health Service 1983, pp. 51 and 229), as did a more recent survey on the effects of various cigarette ingredients (Participants 1985, p. 1112). The latest FTC staff statement on carbon monoxide noted roughly the same conclusion (FTC 1981. D. 1-31 and 1-34).

Thus a claim that ingesting less carbon monoxide makes a brand safer could be subject to attack by the FTC (or by competitors, invoking the Lanham Act), as lacking substantiation. The sources that note a lack of consensus on the role of carbon monoxide also argue there is no ewidence that heart disease is likely to be reduced significantly by smoking currently available low-yield cigarettes -- nor could there be such ewidence if in fact smoker compensation offsets most of the measured yield in carbon monoxide (Participants 1985, p. 1112; U.S. Public Health Service 1983, pp. 121-122). How the FTC's advertising substantiation policy would apply to this situation is discussed separately below. Here, I simply note that since promulgation of the 1955 Cigarette Advertising Guides by the FTC, apparently no manufacturer has explicitly advertised that its cigarette is safer for any reason.

The low-tar. medium-nicotine cigarette: A number of experts have suggested that a low-tar, medium-nicotine cigarette might be preferable to anything on the market today (Russell 1976, Jarvis 1981, Stepney 1981, Gerstein and Levison 1982). The theory is that smokers usually smoke in order to gain the effects of nicotine, and nicotine has yet to be shown appreciably harmful to most smokers. Thus if smokers are going to "compensate" in order to adjust nicotine intake, it might make more sense to build a cigarette that decouples tar and nicotine yield so as to reduce tar (which almost certainly causes lung cancer) or perhaps reduce both tar and carbon monoxide, while retaining a "medium" level of nicotine. The higher level of nicotine yield would presumably prevent compensation and thus insure truly low yields of tar and carbon monoxide.

The market has yet to see a product or advertising that seeks to exploit this approach. The situation is much the same as with the lack of carbon monoxide advertising. Smokers would have to be told through advertising why they should switch to the new type of cigarette, and the reasons would be framed in terms of health and, perhaps, compensation. Although advertisers might be able to claim that the ewidence indicting nicotine as a health hazard falls short of being conclusive, nicotine remains a prime suspect in heart disease. There is no solid proof that the medium-nicotine, low-tar cigarette is in any sense as safe or safer than the low-nicotine, low-tar cigarette (Gerstein and Levison 1982, p. 29-30). Thus the most useful advertising for these kinds of cigarettes, like advertising for the benefits of lower carbon monoxide, could come under attack as lacking substantiation. (I note in passing that advertising for the medium-nicotine, low-tar cigarette, like carbon monoxide advertising, would also have the desirable effect of calling attention to illnesses other than lung cancer.)

FTC Law and Other Constraints

Suppose a cigarette company were to advertise of its brand that because a smoker would inhale less carbon monoxide, the cigarette is "safer" or presents less risk of heart disease. Such a claim would be subject to the FTC advertising substantiation doctrine, which requires a "reasonable basis" for all product claims (FTC 1983, 1984a; Ford and Calfee 1986.) I am not competent to predict what the FTC would consider to be a reasonable basis for the claim in question. The Commission's statement on ad substantiation notes, however, that the "reasonable" level of substantiation will be determined by taking into account the harm if the claim turns out to be false, the benefits if it turns out to be true, the costs of more thorough substantiation, and other factors related to costs and benefits. In this case, probably little if any harm is expected from reducing carbon monoxide, potential health gains would be great if the claimed reduction in risk actually occurs, and the costs of further substantiation (long-term epidemiological data) are probably high. Thus it seems clear that the FTC probably would not require conclusive scientific ewidence that a cigarette with a lower FTC carbon monoxide rating is certain to bring reduced risk. The present policy seems different from that obtaining in the 1950s, when the Commission's concentration on only the costs of possibly false claims led to the 1955 Guides and the 1960 ban on tar and nicotine advertising.

She nuances of FTC advertising regulation are not the only restraints on more aggressive advertising of the health aspects of smoking. The various voluntary health associations, which wield considerable influence, might look askance at any advertising that could potentially reassure at least some smokers who might otherwise quit. And for very different reasons, the cigarette industry itself may view with distaste a new generation of advertising that would be more likely than current tar and nicotine advertising to suggest to smokers the dangers associated with smoking.

CONCLUSIONS

Cigarette advertising today is far less rambunctious than it once was, particularly in the use of health claims. The health-related advertising that remains, primarily tar and nicotine advertising, has become distorted during the nearly twenty years in which FTC measurement methods have remained unchanged. More competitive advertising, as well as FTC changes, might make tar and nicotine advertising more productive than it is. Regulation may also tend to suppress other claims of great potential benefit. These unobserved forms of advertising, which include claims for carbon monoxide levels and for new combinations of tar and nicotine, as well as advertising that addresses how tar and nicotine are measured, could bring improved cigarettes and better consumer choices, while also drawing attention to health hazards other than lung cancer, such as heart disease.

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