The Cigarette Advertising Controversy: Assumptions About Consumers, Regulation, and Scientific Debate

Citation:

John E. Calfee and Debra Jones Ringold (1992) ,"The Cigarette Advertising Controversy: Assumptions About Consumers, Regulation, and Scientific Debate", in NA - Advances in Consumer Research Volume 19, eds. John F. Sherry, Jr. and Brian Sternthal, Provo, UT : Association for Consumer Research, Pages: 557-562.

Advances in Consumer Research Volume 19, 1992      Pages 557-562

THE CIGARETTE ADVERTISING CONTROVERSY: ASSUMPTIONS ABOUT CONSUMERS, REGULATION, AND SCIENTIFIC DEBATE

John E. Calfee, Boston University

Debra Jones Ringold, University of Baltimore

The U.S. cigarette market is surely one of the most thoroughly studied markets in history. The reasons are not hard to find. This market has been blessed with a conveniently short history (mainly since 1914) and copious data on production and sales (thanks to the tax system). A perennially fascinated advertising trade has provided data on advertising and promotion. Persistent market dominance by only six firms (four before the mid-1930s), repeated attention from antitrust authorities, and the prominent use of advertising as a competitive tool have made the cigarette market a natural target for studies of monopoly and competition. Finally, the periodic arrival of staccato bursts of health information, often followed by striking regulatory interventions, have had the effect of creating a series of fascinating natural experiments in oligopolistic competition and regulatory impact.

It is now apparent that the cigarette market has produced yet another natural experiment: the more or less overt adoption by consumer researchers of varied theories of consumer behavior, varied theories of regulation, and possibly, equally varied approaches to the use of scholarship in debate over public policy.

THEORIES OF CONSUMER BEHAVIOR: "SMART" CONSUMERS OR "DUMB"?

The recent literature on cigarette advertising and public policy reflects two distinct views of consumer behavior. One approach, well exemplified in the work of Cohen (1989a and 1989b) and Pollay (1989, 1990), views advertising as a powerful influence that consumers are ill prepared to resist. Let us call this the "dumb consumer" model of consumer behavior. In this model, consumers passively receive advertising messages and - if these messages are persistent and well crafted - passively succumb in large numbers to an almost unconscious impulse to purchase. A complementary role is postulated for public relations, which is seen as overcoming with ease the efforts of physicians and others to warn consumers of the dangers of smoking (Pollay 1990). Much of the potency of advertising and public relations is assumed to arise from fundamental deficiencies in consumer information processing. These deficiencies include short-sightedness or myopia, the discounting of small probabilities, and a reluctance to translate generalized risk information into personal risk. The result (according to this model) is that in the face of cigarette advertising and public relations, consumers systematically and drastically discount the health dangers of smoking, even if they routinely receive accurate health information from sources such as the United States Surgeon General. The dumb consumer model therefore predicts that regulatory interventions such as mandated health warnings and limitations on advertising will have strong effects on the cigarette market.

We believe that the history of the cigarette market casts doubt on the validity of the dumb consumer model. The cigarette market has undergone a series of regulatory interventions that have focussed specifically on information. These interventions include a prohibition on health-related advertising in 1955, health warnings on cigarette packages in 1965, an end to broadcast advertising in 1970, health warnings in advertisements in 1972, and rotating warnings in 1984. These measures have apparently had little if any effect in reducing cigarette sales (cf. McAuliffe 1988; Calfee and Ringold 1990). The reason for this apparent lack of effects is almost certainly not that consumers systematically underestimate or ignore the health effects of smoking. Indeed, what seems likely is that from the very beginnings of the market (cf. Consumer Reports 1938 and citations therein) consumers have absorbed health information from many sources including parents, family, peers, physicians, the press, and popular culture ("coffin nails" is an old slang expression for cigarettes). As was pointed out when Congress prohibited broadcast advertising for cigarettes in 1970, there has never been strong evidence that advertising alone has carried significant weight in comparison to these other information sources, at least not when it comes to basic matters such as whether to smoke or how to rate the dangers of smoking (cf. Levitt 1970). Consumers have long since developed a deep appreciation of the potential dangers of smoking (cf. Calfee 1985). Data collected by the federal government's Office on Smoking and Health indicate that consumer awareness of the major health effects associated with smoking are now at extremely high levels, surpassing even governmental goals (Shopland and Brown 1987; U.S. Dept. of Health and Human Services 1990). Other work suggests that present-day smokers over-estimate (rather than under-estimate) the risk of lung cancer from smoking (Viscusi 1990).

Looking beyond the cigarette market to consumer markets generally, the dumb consumer model suggests that all sellers can routinely deceive consumers. The result should be a market-wide tendency toward deception, a tendency that should largely offset the otherwise beneficial nature of competition. This is an extremely powerful argument - too powerful, in fact. To claim that information processing deficiencies leave consumers helpless in the hands of sophisticated marketing is to imply that almost no market can work well, and that consumers will be subject to the whimsy of sellers in any market where advertising is prominent - and without broadcast advertising, cigarettes are well down on the "advertising-is-prominent" scale (cf. Advertising Age 1991, showing that in terms of advertising expenditures, the leading cigarette brand, Marlboro, ranks only 48th among all U.S. product brands, below such names as Tylenol, Ultra Slim-Fast, Circuit City, and Wrigley). The "dumb consumer" model therefore postulates a market process that cannot resemble efficiency, a market in which well established, vigorously advertised brands and products, however inferior, are nearly invulnerable to attack by new brands that (were it not for advertising) consumers would prefer to buy. But in fact, and contrary to the predictions of the dumb consumer model, markedly inferior products tend to succumb quickly to new and superior alternatives, as can be seen in markets ranging from automobiles to video games. The ancient aphorism, "nothing kills a bad product quicker than good advertising," would never have arisen from experience with dumb consumers.

In contrast to the "dumb consumer" model is what might be called the "smart consumer" model. This describes a world in which consumers use advertising rather than allow advertising to use them. Consumers instinctively mistrust advertising in the absence of supporting information such as experience with brands or retailers, and consumers must be "sold" before they buy. Thus consumers are simultaneously skeptical of advertising in general, yet willing to use advertising when it provides valuable information (cf. Calfee and Ringold 1988, 1992). Deficiencies in consumer information processing occur not in a vacuum but in a competitive environment. Sellers who find themselves placed at a competitive disadvantage by the oddities of consumer information processing have strong incentives to help consumers overcome their informational deficits. Sellers will be motivated to provide new information and to make it accessible - even if the new information is "negative" information that is likely to work to the disadvantage of the overall product market. This has happened in the cigarette market. During the 1950s, the combination of competitive instincts and new health information brought a wave of "fear advertising" about tar and nicotine and health effects of smoking generally. This advertising, which was spurred by competition and not by public health authorities, certainly scared smokers and probably reduced overall market sales. In the words of Fortune magazine, "Never before has an industry spent so much money trying to talk itself out of business. The 'commercials' keep reminding us that tobacco contains tars, resins, and other bronchial abrasives" (Fortune 1963; also see Calfee 1985, 1986; McAuliffe 1988; Ringold and Calfee 1990). Although the Federal Trade Commission has severely limited this kind of advertising since 1960, there are reasons to believe that in today's competitive environment, ad claims about tar and nicotine continue to remind smokers of the health dangers of smoking, as was pointed out some years ago by Schelling (1978).

Similar competitive dynamics have operated in connection with many other products, ranging from foods (where health claims about reduced fat and cholesterol have focussed consumer attention on what they do not want in foods; see Calfee and Pappalardo 1990 and Ippolito and Mathios 1990) to insurance (where claims about the financial security of certain firms can cause consumers to be alarmed about the safety of all insurance firms; see New York Times 1991). Over and over again, competitive forces have led advertising to highlight rather than suppress valuable information, even when that information reflects badly on the product being advertised.

There is a more general point: that consumers have always been vividly aware of sellers' incentives to exploit consumer ignorance, and that both consumers and sellers take these incentives into account when devising their marketplace strategies (Bauer 1958; Wright 1986). Buyers cast a skeptical eye on information from sellers. Sellers know this, and buyers know that sellers know it. So sellers realize they must eventually earn credibility in the marketplace, and lay plans accordingly. These insights can be combined with the large and growing literature on the economics of information, which describes how information courses through markets as a special kind of "product" (Stigler 1961; Nelson 1974; Ford and Calfee 1988 and references therein). The emerging result of these analyses is a vision in which competitive markets tend toward efficiency not only in the classic Adam Smith sense of production, distribution and pricing, but also in terms of information and consumer choices.

We believe that the smart consumer model is extraordinarily robust across cultures and through time. Perhaps what is most surprising is the degree to which this model applies to economies very different from that in the United States. If one looks at societies with amazingly weak consumer protection laws on, say, medicines, one finds that consumers who possess extremely little in the way of education or government information sources nonetheless carefully pick and choose among powerful drugs so as to avoid dangers that far more knowledgeable American consumers supposedly cannot deal with on their own (cf. Peltzman 1987, Nigerian Hoechst Limited, and CIBA-Geigy Pharmaceuticals). In Russia and Eastern Europe, where consumers have emerged wide-eyed from 40 or even 70 years of ceaseless anti-marketing propaganda, recent surveys show that these consumers are already equipped with attitudes toward markets and incentives that are essentially the same as the attitudes of American consumers (Shiller, Boycko, and Korobov 1991). Experimental studies of bargaining outcomes have also found striking similarities among citizens of nations as diverse as the United States, Israel and Yugoslavia (Roth, et al. 1991). It seems evident that wherever advertising is allowed, "smart" consumers - consumers who understand marketing incentives and use advertising to their own advantage - are the rule rather than the exception.

Thus there are two opposing views of how consumers respond to persuasive communications. The clash between these views is not new. Much the same dispute arose after World War I and its accompanying barrage of political propaganda. The dispute continued for decades, while the focus of debate slowly shifted from purely political advertising to commercial advertising. As described in the masterful treatments by Bauer (1958, 1963), the depressing specter of hapless consumers victimized by organized persuasion is a vision that has often been described, but has never withstood scrutiny. Steady enhancements in the techniques of mass persuasion have not brought increasing commercial power over consumers, but instead have been met with increased sophistication and skepticism on the part of consumers. The effect is a market in which sellers must scramble to maintain credibility, rather than one in which consumers are simply victimized by whatever advertising claims come their way. These market dynamics should be taken into account when assessing the likely effects of advertising and promotion. Competitive advertising, like other competitive tactics such as price-cutting, can easily result in a stand-off between opponents, with little obvious change in market shares. If competitive dynamics are ignored, it is easy to fall into economic fallacies such as the commonly made argument that large advertising expenditures for individual brands necessarily cause either wholesale brand switching or an increase in total market sales (cf. Tye, Warner and Glantz 1987).

DOES REGULATION WORK? SHOULD WE CARE?

The cigarette market features unusually intense regulation of information (including warnings on labels and in ads, disclosure of tar and nicotine yield, prohibitions on broadcast advertising, and prohibitions on claims about health effects of smoking). Recent policy proposals argue that even stronger regulation (such as a ban on all cigarette advertising) would improve an otherwise defective market. We should therefore examine the topic of regulation itself, and in particular, the question of whether regulatory interventions improve markets. A natural companion to what we have called the "dumb consumer" model of consumer behavior is an optimistic model of regulation - a "dumb consumer/smart regulator" model, one might say. In effect, those who believe that consumers are bamboozled by advertising flim-flam are often prepared to supplant consumer judgments with the judgments of regulators. In making such recommendations, advocates of increased regulation typically treat regulation as if it were simply the rational result of disinterested public service, i.e., a well-crafted tool of enlightened public policy (American Medical Association 1986; Cohen 1989a and 1989b; Waxman 1991). That the result of increased regulation will be a net improvement for consumers is usually taken for granted, and the possibility that regulation will fail to improve the market is often ignored.

A second view of regulation is radically different. Regulation is viewed as the result of a political process, a process that begins with murky goals, meets pressure from numerous interest groups, undergoes intricate compromises, and finally achieves implementation in a form that may be entirely divorced from the original goals (to the extent that coherent goals existed in the first place). It is no wonder that analysts of the regulatory process refer to the "law of unintended consequences," according to which the unintended costs of regulation outweigh the intended benefits. Hence regulatory failure is assumed to be more likely than regulatory success, unless and until contrary evidence emerges.

In the economic literature, these two approaches correspond roughly to the "public interest" theory of regulation, which assumes that regulation is wise and effective, and the Chicago school of regulation, which posits that the many interests served by regulation do not necessarily include those of the public at large (Stigler 1971). Debate over these opposing visions has given rise to a large empirical literature. This literature provides little support for a presumption that regulation is efficient or beneficial, and much support for the opposite view. In the history of major economic regulation at the federal level, for example, the gap between intentions and effects goes back at least to the renowned Interstate Commerce Act of 1887, which was designed to end the rapacious economic conduct of American railroads. Research has found that the ICC Act increased the stock prices of railroads, a result which strongly suggests that "the railroads welcomed regulation as a means for facilitating the enforcement of cartel-like agreements" (Prager 1989). Consumers were almost certainly losers under the ICC Act. Similar conclusions about more recent events have been reached by numerous studies of almost every major market in which regulation has been important (see Stigler 1975 or almost any issue of the Journal of Law and Economics, such as the one containing Coate, Higgins and McChesney 1990).

These remarks on the dubious benefits of regulation apply specifically to the cigarette market. Research has found that such major interventions as the 1960 FTC tar and nicotine ad ban and the 1970 broadcast ad ban strongly limited consumer benefits from informational competition, while often enhancing industry welfare (Hamilton 1972; Warner 1979; Schneider, Benjamin, and Murphy 1981; Calfee 1985, 1986, 1987; Schuster and Powell 1987; Mitchell and Mulherin 1988; Scheraga and Calfee 1991). Even the 1965 law that put warnings on labels has been criticized as worthless or worse (Drew, 1965). On the other hand, empirical documentation of benefits from these and other regulatory initiatives is scarce or nonexistent. It is clear that however one feels about the workings of the cigarette market in its present state, it would be foolish to assume without evidence that the next regulatory advance will improve the welfare of consumers.

PUBLIC ADVOCACY AND SCIENTIFIC DEBATE

Dispute among academics is inevitable whenever the spheres of science and public policy interact. The danger is that disputation will overwhelm science, to the detriment of scholars and consumers alike. Two problems are paramount. One is the substitution of ad hominem attack for reasoned argument - that is, attacks on scholars themselves (or on their ideology or their funding sources) rather than on the coherence of their arguments. The second problem is the distortion of science itself. This more complex and more serious problem involves both misreading of research outcomes to support preconceived conclusions, and unreasoned attack on research for what it concludes rather than for its intellectual substance. These latter difficulties are simply too complex to deal with here, so we will stick with the first problem, which is more or less the personalization of academic debate.

Aside from being a sign of intellectual weakness (else why use this approach?), an ad hominem approach in debate about cigarette advertising would interfere with the process of arriving at better ideas and evidence. Three problems emerge. One is that the ad hominem approach - such as pointed inquiries into funding sources - will eventually stumble over itself. The process has no logical limit. There is always another suspicious factor to take into account. Large funding sources practically always have agendas, and policy evaluation research is therefore laden with the expectations of the funding source. For example, public agencies that advocate the printing of warnings on product labels surely hope that the research they support will find such labels to be effective. Of course, this expectation does not in itself eliminate the value of such research; rather, one must look at the substance of the research in order to assess its worth. The unfortunate result of ceaseless attention to researchers' motives is that all participants, targeters and targets alike, become distracted from the central issues whose resolution demands our full attention and more.

The second point is less obvious and more insidious. If one feels free to dismiss or discount arguments according to their source, a logical next step is to search for correlations between the content of arguments and the sources from which arguments emerge. Usually, such correlations will be found. Then, why not take a short cut? Why not simply assume that studies which reach certain conclusions are likely to have been funded by certain (suspect) sources, and therefore, likely to fall into a category that has already been judged as unworthy of attention regardless of content. One can then economize on intellectual effort by ruling out of the debate all research that reaches "incorrect" conclusions. The pernicious consequences of such an approach are too obvious to merit further discussion.

The third point, the simplest by far, is how to avoid the problem. We should all be judged by what we say, not by who we are or who we associate with or even whom we receive money from. Our own views on, say, "dumb" versus "smart" consumers, should be assessed according to the coherence of our argument and the quality of the evidence we have adduced. The same should apply, of course, to the arguments of those who take an opposing view. Unfortunately, there is reason to fear that this ideal state of affairs will cease to exist if and when the stakes in the debate (especially the financial stakes) become very large. Recent dispute over the health effects of exposure to asbestos, for example, suggests that when a product becomes engulfed in multi-billion dollar products liability settlements, not to mention the prospect of government-mandated cleanup activities that will cost even more, the temptation to judge researchers by criteria other than the quality of their research becomes very great indeed; the courts have actually sought to prohibit certain experts from testifying purely because they participated in a certain academic conference (Stone 1991; Wall Street Journal 1991). Much the same thing is happening in connection with research on exposure to lead, where the financial stakes in terms of product liability and clean-up costs are also high (see Science 1991). Public debate based purely upon scientific merit remains an indispensable goal.

CONCLUSIONS

Consumer researchers of the cigarette market differ in their views of consumer competence and in their skepticism toward regulation. Much of the dispute resolves into a clash between confidence in regulation and confidence in market competition. This is not merely a matter of ideology, preconceived notions, or sources of funding. Different theories have different predictions. We believe the smart consumer model explains the dynamics of contemporary markets better than the dumb consumer model does. Market competition has proved to be more robust and beneficial - especially in connection with product information - than one might expect from a simple inventory of consumer information processing deficiencies. This is perhaps most striking in connection with information about the potentially adverse health effects of products, information that competitive advertising has repeatedly provided to consumers despite the potential to reduce overall demand for the product. Similarly, the optimistic view of regulation inherent in recommendations for increased regulation does not reflect the actual workings of regulation in either the cigarette market or in markets generally. Competitive advertising has consistently demonstrated its power to enlighten consumers without regard for the welfare of the industry doing the advertising, while regulation has tended to impede improvements in consumer information.

Sometimes, differences over science expand into a politicized attitude toward scientific debate. The result can be to judge research by its conclusions or by its source rather than by its quality. This is a self-defeating process that retards movement toward better understanding of both consumer behavior and the dynamics of the marketplace. The solution (not an easy one when vast amounts of money are involved) is to hold fast to the traditional academic focus on coherency of argument and quality of evidence.

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