Table of Contents

No More Youth Advertising?

The Reaction of Tobacco Companies to the Master Settlement Agreement

Michael Elliot Hofer

Policy Analysis and Management Honors Thesis

I would like to thank Dean Alan Mathios, Professor Donald Kenkel and Professor Sharon Sassler for their help and guidance through this process. I would also like to acknowledge Professor Rosemary Avery and her research assistants for the data that I used for this study, which came from the SCADs database which was created through their hard work and dedication.

Table of Contents21. Introduction

32. Tobacco regulatory policy and its evolution in the United States

32.1 Types of tobacco regulatory policy

72.2 Tobacco in the United States before the Master Settlement Agreement

122.3 The Master Settlement Agreement and recent policy initiatives

143. Literature Review

153.1 Price increases and smoking rates

173.2 Youth smoking and susceptibility to advertisements

213.3 Youth smoking and brand recognition

243.4 Aftermath of the MSA

274. Hypotheses

285. Data and Methods

285.1 Data

305.2 Econometric Model and Identification

326. Results

326.1 Descriptive Statistics

346.2 The effect of the MSA on tobacco advertisements in all magazines

366.3 The different reactions to the MSA by RJR and Philip Morris in all magazines

386.4 The effect of the MSA on tobacco advertisements in youth exposure magazines

406.5 The different reactions to the MSA by RJR and Philip Morris in youth exposure magazines

417. Discussion and Conclusions

1. Introduction

In 2009, over 20% of high schools seniors had smoked a cigarette in the last 30 days (Johnston et al., 2009). This is particularly troublesome since an estimated 438,000 Americans die each year as a result of smoking (CDC, 2009b). Even more suffer from smoking-related illnesses, including cardiac attacks, lung cancer, and other respiratory and cardiovascular diseases (CDC, 2008). As tobacco use increases, the likelihood of contracting any of the above illnesses increases as well.

In the latter half of the 20th century, the US government began to regulate youth smoking through restrictions on advertising. One reason for this is the contention that cigarette advertisements are the most important factor in determining cigarette consumption (Nelson, 2006). In 1991, a study found that children between the ages of 5 and 6 found Joe Camel (the cartoon character used to market Camel cigarettes) more recognizable than Mickey Mouse (Olstad, 2009). The results of the aforementioned and other studies led the government to attempt to eliminate, or at the very least cripple, cigarette advertisements targeted at children. This policy was promoted through the 1998 Master Settlement Agreement (MSA), a deal stuck between the state attorneys general and the predominant cigarette manufacturers, that led to a tax-like increase in cigarette prices, as well as advertising and promotion restrictions (Nelson, 2006). Among the regulations was the elimination of cartoon characters, such as Joe Camel, and other advertising figures, such as the Marlboro Man, from advertisements. These icons were seen as marketing tactics aimed at children. Additionally, outdoor advertising, such as billboards were banned regardless of their placement (Office of the Attorney General of California, 2009). These restrictions were imposed so that children would be less exposed to cigarette advertisements.

The above limitations have had major ramifications on not only the cigarette advertising market but on the overall tobacco market. This paper examines these changes by determining the impact the MSA had on cigarette advertising in magazines. More specifically, it looks at how the major companies, such as RJ Reynolds and Philip Morris, responded to the agreement. Particularly of interest is the tobacco advertising in magazines with high youth exposure.2. Tobacco regulatory policy and its evolution in the United States2.1 Types of tobacco regulatory policy

The two fundamental types of tobacco regulations are demand-side and supply-side policies. The former are restrictions that alter the demand curve while the latter affect the supply curve. Demand-side policies are aimed at changing consumer behavior. Conversely, supply-side policies are aimed at changing producer behavior. Although these categories are generally useful, basic economics suggests that they can also be ambiguous. For example, whether it aims to change consumer or producer behavior, when a new regulation causes the market to reach a new equilibrium both consumers and producers behaviors have changed. .

There are three principal categories of demand-side regulation: those that restrict where you can smoke, taxes, and minimum age restrictions. The first category of demand-side tobacco control policy is where one is physically allowed to smoke. Countries have adopted laws regarding this category at different levels of government. For instance, the Canadian government restricts smoking in non-public workplaces (examples of public workplaces are restaurants and stores) by mandating that an employer can designate a smoking area but that it has to be at most 25% of the floor space of the business. Canada leaves further restrictions, such as banning smoking in restaurants and bars, to municipalities, many of which have enacted such laws. Similarly, the United States federal government banned smoking in federally funded schools and health facilities but individual states and counties enacted more stringent restrictions (Shafey et al., 2003). As of October 2009, 19 states had 100% smoke-free workplaces, restaurants, and bars (Americans for Nonsmokers Rights, 2009). France and the United Kingdom have similar regulations but they were enacted at the federal level (British Broadcasting Corporation, 2009).

The second category of demand-side regulation is taxes. The countries within the European Union, as well as Canada and the United States have fairly substantial taxes on cigarettes. Canadas taxation is largely dependent on the province one is in. The average tax rate is $30 per carton of 200 cigarettes. Saskatchewan has the highest tax at $35 and Yukon the lowest at $20.40 (CBC News, 2005). The United States taxes less than Canada does but still has an average tax of $2.21 per pack and has increased their federal excise tax from 24 cents in 1995 to $1.01 in 2009. These are tax averages since the United States, like Canada, leaves additional taxation up to the individual states and counties (CDC, 2009a). However, compared to France and the United Kingdom, the United States and Canada have low tax rates. Frances average tax burden is 3.71 (approximately $5.26) per 20 cigarettes and the United Kingdoms average tax burden is 4.33 (approximately $6.76) per 20 cigarettes (Tobacco Manufacturers Association, 2008). After factoring in the exchange rate, the taxes in these countries are markedly higher than those of Canada and the United States.

The third category of demand-side regulation is a minimum purchasing age. Most countries have a minimum age at which people can purchase items such as alcohol and tobacco. By preventing some people from buying the items, they are directly altering demand. Since fewer people can readily obtain it, there is a reduction in demand. If there were no minimum purchasing age than it is possible that overall demand would increase as a result of more people being able to procure cigarettes. The United States, Canada and the United Kingdom both require that a person be 18 years of age to purchase tobacco, but France allows 16 year olds to purchase tobacco products (Shafey et al., 2003; British Broadcasting Corporation, 2007).

Supply-side regulations are primarily aimed at restricting the supply of cigarettes. The two principal categories are packaging restrictions and regulations limiting the placement and content of advertisements. This is one area where countries tend to have fairly different regulations. The United Kingdom, United States, France and Canada, among many other countries, require warning labels on all cigarettes packages sold. The United States requires that the warnings be in a color that contrasts the packages color, in 10 point font, at least 2 lines long and say one of five different Surgeon Generals warnings. The United Kingdom only has two possible warnings for the front of packages (for example, smoking seriously harms you and others around you) and fourteen different ones for the back of the package (for example, smoking causes fatal lung cancer). The UK also mandates that the warnings must cover 30% of the front of the package and 40% of the back and be in a color that contrasts with the package. France has rotating labels as well but they only need to cover a minimum of 4% of the package. However, these warnings must be in a place such that when the package is opened correctly, the warning label is not destroyed (Shafey et al., 2003). Canada, however, has the strictest regulations. Their warnings are 5 paragraphs in length and must be on the package in French and English and occupy at least 50% of the main outside surface of the packaging. Additionally, they must list the toxic ingredients of the cigarettes and their proportion of the total weight of the product. These warnings also sometimes contain a graphic image of the damage done to internal organs as a result of smoking (British Broadcasting Corporation, 2009). Thus, each country has their own set of regulations on the packaging of cigarettes. A summary of the above regulations can be found in Table 1 in the Appendix.

The second category of supply-side regulation is the placement and content of advertisements. All of these countries forbid the use of advertising outdoors through billboards or other means by which children could be exposed to them. Similarly, none of them allow tobacco advertisements on television and only the United Kingdom allows advertisements on the radio (although they are heavily restricted). France has taken this a step further and mandated that these advertisements cannot appear in magazines or newspapers either. The only type of advertisements that the French government allows are small posters (60cm x 80cm) at the point of sale; however, they cannot be visible from outside the store. The United Kingdom also does not allow advertisements in magazines or newspapers. Canada is a little less restrictive in that it allows advertisements in magazines, but only those with primarily adult readership. The United States is perhaps the least restraining in that it allows advertisements in magazines but mandates that the advertisements contain a Surgeon Generals warning (similar to those that appear on the cigarette packaging). Therefore, limitations on the locations and content of advertisements are very different depending on the country (Shafey et al., 2003).

Despite different regulatory standards, these countries do not have radically different smoking rates. Among adults, France and the United Kingdom were tied with the highest rate at 27%, followed by the United States at 23.3% and Canada had the lowest with at 21.7%. These rankings are fairly different when considering youth and there is also more dispersion. In this category, the United Kingdom has the highest rate with 26%, followed by, France (24%), the US (23.1%), and Canada (18.4%). However, not all of these countries have the same definition of youth so comparing them is entirely effective. Nevertheless, some conclusions can be drawn. An interesting similarly between these rankings is that Canada, the country with the strictest regulations has the lowest smoking rate in both populations (Shafey et al., 2003; Office of National Statistics, 2009). It is unknown whether these regulations are the reason for the lower rates or if there are other factors. Nevertheless, these countries do not have radically different smoking rates despite large variations in policy amongst them.2.2 Tobacco in the United States before the Master Settlement Agreement

The first tobacco advertisement was run in a local New York newspaper by the Lorillard Tobacco Company in 1789. At that time, manufacturing cigarettes was very labor intensive and transportation was exceedingly difficult. It was not until almost a century later that the industry truly began. In the 1880s, the first cigarette machine was created and allowed 100 times as many cigarettes to be made each day, compared to, before the machines inception, when cigarettes were made by hand (Borio, 2001). Afterwards, color lithography was invented and truly gave birth to cigarette advertising. The lithograph also allowed for the creation of brand names which, in turn, boosted sales. The tobacco companies created trading cards featuring movie stars, athletes and other famous people, that were inserted each pack. This helped to strengthen brands by making their names more present in popular culture. By connecting their brands to popular figures, such as Joe DiMaggio, companies created more of a name for themselves and widened their appeal. Approximately seventy years later, the companies also provided free cigarettes to soldiers during World War II. The result was a mass-return of cigarette-addicted GIs at the end of the war (Olstad, 2009).

The 1950s began as a very profitable time for tobacco companies. Not only did they have all of the aforementioned new customers, but their advertising rose to new heights. They were able to use doctors, dentists and celebrities (such as Mickey Mantle) in their advertisements. Even studies beginning to uncover the link between smoking and lung cancer could not ruin the decade. The response to the revelations was the inclusion of filters in cigarettes, even though it was eventually determined that the filters were ineffective (Olstad, 2009). However, the late 1950s brought a new challenge for tobacco companies: cancer. In 1956, Surgeon General Leroy Burney commissioned a study group to assess the scientific data relating to tobacco and health. The group uncovered sixteen studies, in five countries, that found a significant association between smoking and lung cancer. Using this empirical basis, as well as the growing sentiment in the popular press that smoking was tied to lung cancer, the group was led to conclude that the sum total of scientific evidence establishes beyond reasonable doubt that cigarette smoking is a causative factor in the rapidly increasing incidence of human epidermoid carcinoma of the lung. In 1964, Surgeon General Luther Terry released another report, this one based on over 7,000 studies that linked smoking with lung cancer and other diseases. The cigarette companies reacted by neither confirming nor denying the Surgeon Generals findings. The manufacturers insisted that more research was needed and that the Surgeon General had not proven that cigarettes caused cancer. Some hypothesized that the industry would collapse after these discoveries but that did not occur; between 1964 and 1973 tobacco consumption did not decline greatly (Brandt, 2007). Numerous econometric studies have examined the effect of these information shocks on demand for tobacco products. Sloane et al. (2002) and Hamilton (1972) performed such an analysis and found that the information did decrease demand but not drastically. Warner (1989) determined that anti-smoking campaigns did in fact have a measurable effect on tobacco use. For example, in 1985 there were 56 million smokers and it was estimated that without the anti-smoking campaigns there would have been over 90 million smokers.

The findings of the two Surgeon Generals were instrumental in the first tobacco regulations in the United States. In 1964, the Federal Trade Commission decreed that tobacco companies would be committing an unfair or deceptive act if their packages and advertisements did not contain any information on the danger posed by smoking. Thus, the first Surgeons General warning label was born and read Caution: cigarette smoking may be hazardous to your health (Brandt, 2007). This regulation was imposed by the Federal Cigarette Labeling and Advertising Act (Borio, 2001). In June 1967, the Federal Trade Commission (FTC) found that the warning label was ineffective. This was chalked up to the fact that the legislation had been heavily influenced by the tobacco industry: when the bill was moving through Congress, the tobacco companies had exerted influence through friends of theirs in Congress. The result was a watered down version of the original legislation, which would have put, on all packages and advertisements, a warning label that read Caution: cigarette smoking is dangerous to health and may cause death from cancer and other diseases (Brandt, 2007). In 1969, Congress passed the Public Health Cigarette Smoking Act of 1969, which mandated that beginning in 1971, all packages would read Warning: the Surgeon General has determined that cigarette smoking is dangerous to your health and, in 1984 Congress passed the Comprehensive Smoking Prevention Education Act which created the rotational labels that are still being used today (Borio, 2001).

In 1969, the FCC announced that they sought to ban all broadcast cigarette advertising (Borio, 2001). That July, the president of Philip Morris, Joseph F Cullman, announced that the tobacco industry would voluntarily cease all television advertising in exchange for being spared from antitrust legislation. One reason the industry may have been willing to compromise was the limited ramifications in other countries, such as Great Britain, France, and Italy. Another potential explanation is that since all of the major companies were advertising, a total cessation in advertising had the potential of raising industry profits. This second explanation is dependent on the goal of cigarette advertising. It is only conceivable if companies advertise in order to increase their own market share, and not to bring more people into the general market. However, the broadcast ban was not the end of cigarette regulation. In 1972, the FTC succeeded in requiring a warning label on all tobacco advertisements (Brandt, 2007).

In the 1970s and 1980s, the Surgeon General and other researchers began to focus on secondhand smoke. The 6th Surgeon Generals report (1972) addressed public exposure to air pollution from tobacco smoke and its dangers. In 1975, Minnesota became the first state to pass legislation that banned smoking in public offices, stores and banks (Borio, 2001). Over the next few years, many states had difficulty passing similar laws but individual corporations started to take action. By the mid 1980s, most large-corporations had explicit smoking policies and by 1990 smoking was banned on all airplanes as well (Brandt, 2007). In 1993, the Environmental Protection Agency declared secondhand smoke to be a Class A carcinogen (which means that there is no safe level of exposure). Throughout the rest of the decade, Congress banned smoking in public schools and other locations where federally funded childrens services are provided (Borio, 2001).

In 1994, the CEOs of the seven largest tobacco companies testified in front of Congress. This is one of the most emblematic events of cigarette regulation. The CEOs were still denying that tobacco was harmful or addictive. The CEO of Philip Morris stated that smoking may cause lung cancer. When prompted about why he said "may," he replied that no empirical studies were conducted and without laboratory studies one cannot be sure. The other CEOs agreed and said that they do not believe that smoking causes cancer. They also restated their belief that nicotine is not addictive. All of the above contentions were made under oath (U.S. Congress, 1994). The next big development in the struggle between the government and the tobacco companies was the Master Settle Agreement.2.3 The Master Settlement Agreement and recent policy initiatives

The legal basis of the MSA was to recoup Medicaid costs. For years, individuals had attempted to gain compensation from tobacco conglomerates for the health issues that they had incurred as a result of cigarette use. For the most part, these suits were unsuccessful. During the Clinton administration, anti-tobacco sentiment was rising and a bill was drafted by Congress that would have heavily regulated both the tobacco industry and where people could smoke (indoors, public spaces, etc.).This bill ultimately did not pass. Amidst all this, in 1995 the state attorneys general filed law suits against the tobacco companies in order to obtain money to offset the health care expenses smoking caused. In order to avoid multiple simultaneous class-action law suits, the tobacco companies and the state attorneys general settled on the MSA, which was signed on November 23, 1998 (Redhead, 1999).

There are three principal parts of the Master Settlement Agreement. The first concerns financial restitution. As previously mentioned, one of the reasons for the class-action law suits was states attempting to recoup a portion of the Medicaid expenses caused by tobacco products. Rather than having a lump-sum settlement, a tax was added to cigarettes. The income from this tax went (and still goes) to the states to compensate for the costs incurred. Additionally, if new companies attempted to enter the market, they were still required to pay the MSA-imposed levy so that there was no competitive advantage (Redhead, 1999). If they had not been required to pay the states, they could be able to charge lower prices and thus would have a distinct advantage in the market compared to the companies that had to repay the medical costs. In an ideal world, the income from the tax would be divided up amongst the states according to the state-specific medical costs resulting from tobacco use. However, politics influenced the distribution of the tax income and the above optimal situation did not occur. For instance, California accounted for approximately 8.5% of the medical costs but receives almost 13% of the settlement income and Arizona receives 1.5% compared to the 0.53% of the medical costs incurred. Conversely, Indiana accounted for 3.59% of the medical costs but only receives 2.08% of the income. If the optimal situation had occurred these states would be receiving a proportion equal to that of the expenditures they incurred (Viscusi and Hersch, 2009).

Another key part of the Master Settlement Agreement was the release of tobacco industry documents. The tobacco companies were required to release all of their internal documents and post them on the internet (www.tobaccodocuments.org). The rationale behind this disclosure was to decrease litigation costs for those seeking to sue the tobacco companies. If the documents remained private, potential plaintiffs would have to spend money subpoenaing the documents. With this release, there is little cost to document discovery (Viscusi and Hersch, 2009).

The third important component of the Master Settlement Agreement was a set of new regulations. The overarching goal of this section was to decrease youth exposure to cigarette advertising. Among the limitations were the ban of targeting youths in advertising and cigarette making, the use of cartoons (such as the penguin in Kool advertisements and Joe Camel), the use of billboards, and paying for product placement in movies and television. Additionally, restrictions were placed on the conglomerates ability to sponsor events (Viscusi and Hersch, 2009). The MSA specifically states that youth targeting is prohibited. The agreement defines this as taking any action directly, or indirectly, to target Youth [those under the age of 18] within any Settled State in the advertising, promotion or marketing of Tobacco Products, or take any action the primary purpose of which is to initiate, maintain or increase the incidence of Youth smoking within any Settling State (Office of the Attorney General of California, 2009). The restriction that will be explored in this paper is the limiting of youth exposure to advertising. This clearly bans advertising in magazines such as Seventeen and Teen Cosmo that are targeted almost exclusively at youth audiences. However, the placement of advertisements in magazines that do not have an exclusive youth audience, such as Sports Illustrated, is not expressly banned.

The Master Settlement Agreement was not the end of regulations constricting the cigarette industry. In June 2009, the United States Congress passed the Family Smoking Prevention and Tobacco Control Act which transferred oversight of the cigarette industry from the Bureau of Alcohol, Tobacco and Firearms to the Food and Drug Administration (Wilson, 2009). The first official action taken by the FDA with its new power was to forbid the sale of flavored cigarettes (menthol cigarettes were not considered flavored). The FDA saw these products, such as the Camel Exotic Blends line of cigarettes, as predominantly targeting youth and thus should not be allowed. The only company truly affected by this was RJ Reynolds, the maker of the aforementioned line of Camel cigarettes (Heavey, 2009). These changes will not be reflected in this papers analyses. However, it is important to note that the regulation of the cigarette market did not cease in November 1998.3. Literature Review3.1 Price increases and smoking rates

Many policy makers believe that higher prices reduce smoking, but the research on the topic is less clear. Katzman et al. (2007) found that increases in the price of tobacco, such as those resulting from taxes, decrease the probability of buying cigarettes by 5.9% per $1 increase in price. However, they also found that price increases may not stop people from smoking altogether. Those that continue to smoke get their cigarettes from others, what the authors call a social market for cigarettes. Lewit et al. (1981) found a similar result. They found that price increases are particularly effective in reducing the amount teens smoke since young adults are much more responsive to prices. They contend that a large tax could cause a large number youth who smoke to cease the activity while still leaving industry sales figures minimally or completely unaffected. Siapush et al. (2009) analyzed the responsiveness to cigarette price of over 500,000 people in Australia over a 15 year period (1991 to 2006). This study used stratified random sampling based on electoral districts in the countrys 5 largest cities. The researchers sought to determine the effect of tobacco price increases on the three main income classes: low-income, middle-income, and high-income. They found that a $1 increase in price caused a 2.6% decrease in smoking among low-income people, a .3% decrease in middle-income people, and a .2% decrease in high-income people. The low-income results help strengthen the claim, made in Lewit et al. (1981), that young adults are more responsive to price made in Lewit et al. (1981). Overall, the study suggests that increased prices do lower the amount of tobacco products purchased. Carpenter and Cook (2008) sought to expand on previous research on the effect of price by using a national sample of the United States. The researchers used the Youth Risk and Behavior Surveys (the national version), in addition to data from the state and local versions of this survey, from 1991-2005. This study contained demographic data as well as data detailing the prevalence and frequency of a plethora of behaviors. In this case smoking is the relevant behavior. The researchers found that increases in state cigarette taxes reduced the probability of a youth reporting having smoked in the past 30 days as well as a reduction in the frequency of smoking. Also, one study found that higher cigarette prices decrease the probability of smoking initiation in males, but not in females. The authors theorized that this could be due to females worrying more about their weight (Cawley et al., 2004). Thus, numerous studies have found that increases in price can reduce youth demand for cigarettes.

Conversely, Philip DeCicca, Donald Kenkel and Alan Mathios have done extensive research on the effect of taxes and higher prices on smoking. They found that higher taxes are associated with higher rates of cessation but are not associated with reduced initiation. They also concluded that in general, higher prices have weak, and insignificant, effects on adolescents starting to smoke (DeCicca et al., 2002; DeCicca et al., 2007; DeCicca et al., 2008). Similarly, Schnohr et al. (2008) investigated the effect of national tobacco policies (more specifically, a smoking ban at educational facilities, price increases, and minimum purchasing age restrictions) on tobacco use. They found that bans at schools led to lower odds ratios of daily smoking. However, like DeCiccas studies, they found no association between cigarette prices and adolescent daily smoking prevalence. This is directly contradicting past research that young adults are more price-sensitive than other age groups. However, this studys results must be considered in context. This study used cross-sectional data from adolescents in Europe, Israel, and North America. There were 1500 participants divided into three age groups: 11, 13 and 15 year olds. The fact that this was cross-sectional, and not longitudinal could indicate that the children at this time period are not particularly price-sensitive but over time they may become more so thus validating other studies, such as Lewit et al (1981). Goel and Nelson (2006) conducted an extensive review of the literature on the effect of price on cigarette use. They ultimately conclude that while it seems as though increasing taxes can be an effective way to lower tobacco consumption, further research is necessary. More specifically, they note that a large number of studies on the topic do not control for non-price policies (such as health warnings and advertising restrictions) and, as such, their estimates of the effect of the tax policy could be biased. Therefore, there is no consensus opinion on the effect of tobacco price changes on adolescent smoking decisions.3.2 Youth smoking and susceptibility to advertisements

One of the reasons behind the advertising restrictions of the MSA was the prevalence of smoking in children. According to a study by Monitoring the Future, in the mid-1990s, as many as 20% of 8th graders (approximately 13 years old) had smoked in the past 30 days and as many as 30% of 10th graders (approximately 15 years old) had smoked during that same time frame. These numbers represented increases from the early 1990s when the rate was as low as 20% for 10th graders and 14% for 8th graders. During the same time period, the number of children in 8th and 10th grade who saw smoking as a dirty habit or as reflecting poor judgment decreased (Johnston et al., 2008). These figures help to illustrate that before the Master Settlement Agreement, the prevalence of teen smoking was not only rising, but children were beginning to change their views of smoking as a bad habit.

One of the potential reasons for the aforementioned increases is youth susceptibility to advertisements. Much research has been done on social norms and peer effects but the most pertinent of these studies are those that relate advertising. Martin Fishbein theorized that advertisements have a particularly potent effect on youth because while ones personal attitudes towards smoking are influential in determining the onset of smoking in adults, social norms are influential for adolescents. Advertisements can alter a childs view of what it means to smoke and create positive role models for children. Fishbein concluded that there can be little question that cigarette ads attempt to create a positive image of the smoker (Fishbein, 1977).

Whether a childs family smokes is also important when assessing smoking initiation and is connected to Fishbeins theory of social norms. Hill et al. (2005) followed 808 children from age 10 to age 21 and assessed the effects of family factors on daily smoking initiation. They found that even if parents tell their children not to smoke and do not involve them in their own tobacco use, the children are still more likely to commence smoking than someone not in that situation. They suggest that the best way for parents to reduce the chance of their kids starting to smoke is to stop or reduce their own smoking. Musick et al. (2007) found a similar result when they used 890 children ages 12-17 and observed the relationship between parental substance abuse and child substance abuse. They also found that, more specifically, the actions of a teenagers mother is particularly potent in such that a mothers smoking is positively associated with teen smoking and her disapproval of marijuana/drinking is negatively associated with a child engaging in these actions. Fleming et al. (2002) conducted a longitudinal study and also found that having a parent who smokes increases the likelihood of smoking initiation in children.

An important aspect of this empirical research is how exposure to advertisements affects tobacco use. Botvin et al. (1993), surveyed students on their exposure to cigarette advertisements and their smoking habits. Two years later, the students were reinterviewed to determine if they had begun smoking. The researchers found that high exposure to cigarette advertisements was predictive of both current smoking and future initiation. Additionally, a longitudinal study investigated the effect of tobacco advertising and promotional items on the likelihood that adolescents will start smoking. The researchers found that both advertisements and promotional items (both current use and willingness to use items in the future) were causally linked to the onset of smoking. The participants in this study were randomly selected adolescents in California who had never smoked. The promotional items were found to be more persuasive than advertisements, but both were causally linked to the onset of smoking (Pierce et al., 1998; Altman et al., 1996). These studies are particularly trustworthy due to their sample selection. Other studies tend to have samples from a small region (for example, the southwestern United States) but Altman et al., (1996) uses a sample drawn from the entire nation. This is particularly important because it allows for a more accurate generalization of the population at large, while it is more questionable to generalize from studies based in a small region. Schooler et al. (1996) found a similar result in that children who have a tobacco promotional item are 2.2 times more likely to experiment with tobacco. Additionally, seeing tobacco advertisements in magazines increased the likelihood of experimenting by 21% and seeing advertisements in stores increased the likelihood by 38%.

The connection between tobacco marketing and youth tobacco use was also researched by Wellman et al. (2006). This study was a meta-analysis of 51 articles and found that exposure to advertising and other marketing methods more than doubled a childs risk of using tobacco. Youth who were exposed to cigarette advertisements were also approximately 50% more likely to hold positive attitudes toward tobacco and were twice as likely to begin smoking. Armstrong et al. (1990) conducted a randomized control trial of 7th grade children and found that a significant effect on the smoking behavior of children was the perceived response to cigarette advertising, with the children expressing that their decisions were influenced by tobacco advertising. Similarly, Aitken et al. (1991) interviewed 640 children, between the ages of 11 and 14, twice, with one year between meetings. They found that children whose intentions to smoke became more positive over the one year gap tended to be more aware of cigarette advertisements (compared to the rest of the sample), and children whose intentions to smoke became more negative were less appreciative of cigarette advertisements at the first interview (compared to the rest of the sample). OLouglin et al. (2009) investigated the risk factors associated with teen smoking initiation. They used approximately 650 children ages 12-13 that were given questionnaires every three months for five years. The study investigated many risk factors, among them susceptibility to tobacco advertising. This study also found that advertising receptiveness was a risk factor for smoking initiation. This supports the general body of research that awareness of advertisements is linked to tobacco use.

While these studies do find that advertisement exposure is linked to the onset of smoking, it is not causal proof. While some may make causal conclusions, they lack the ability to fully simulate the decision to start smoking. For instance, in the aforementioned longitudinal studies, other factors that were not controlled by the researchers could have also been strongly linked to the onset of smoking. Without an empirical study that controls for all potential confounding variables, one cannot conclude with certainty that advertising causes one to start smoking. 3.3 Youth smoking and brand recognition

Youth recognition of specific brands and advertisements in general are also linked to smoking initiation. Evans et al. (1995) found that familiarity with cigarette advertising and brands was more of a factor in smoking initiation than having friends and family who smoke. This result occurred in children who were found to be high receptivity to advertisements and those with low receptivity. Receptivity was determined by measuring the childrens recognition of advertisements, if they had a favorite ad, could name a brand they might purchase, owned a tobacco-related promotional item and were willing to use a promotional item. In another study, Freeman et al. (2009) analyzed youth recognition of advertising and its effect on smoking susceptibility. Children between the ages of 7 and 12 were asked to identify what an advertisement was attempting to sell. These answers were then coded into three groups: no understanding, product category understanding (for example, it is a cigarette advertisement), or brand advertising (for example, the advertisement is trying to sell Marlboro cigarettes). The participants were asked do you think you might try a cigarette soon? and if one of your favorite friends offered you a cigarette, do you think you might try one? The answers were assessed on a four point scale. Those that answered no way (the most negative response) were classified as unsusceptible. This instrument was adapted from previous research. All other participants were considered susceptible. Those who identified that an advertisement was promoting a brand of cigarettes were 182% more susceptible to smoking. This study has issues that must be acknowledged. More specifically, the researchers had a sample of only 271 participants, all of whom attended four public schools in the southwestern United States. There are a number of problems with generalizing from the aforementioned sample. Firstly, students who attend public school and private school are not the same and as such could be differently affected by advertisements. Similarly, one cannot generalize findings from the southwestern United States to other parts of the country. It is possible that people in different areas of the country think and act different and as such a generalization is not prudent. In most cases, the studies investigating youth recognition of specific brands and advertisements face similar limitations to those mentioned above. There is no way to control for all confounding variables. Without this step, one cannot conclude how much recognition of an advertisement effects smoking incidence.

An important limitation to all of the above studies is a lack of causal inference. Without this it is impossible to determine if the high youth smoking rates are a result of cigarette advertising or merely a coincidence. Heckman et al. (2008) had this very criticism of the body of research. They argue that there are three requirements for a study to be used as evidentiary support of the contention that advertising is a causal factor in youth smoking: valid measurements of smoking outcomes and the causal factors, controls that account for other potential causes of smoking initiation (endogeneity), the study must be replicable so that other researchers can follow and duplicate the analysis. They state that much of the public health literature investigating the causal impact of advertising has not used a strong theoretical framework and, as such, is severely limited and thus does not meet the aforementioned criteria. He contends that econometric studies can fix some of these problems because of their increased controls that the field incorporates. Thus, it is not to say that the findings are necessarily incorrect but rather that one cannot accept the conclusion as fact without more reliable, replicable, and sound research designs.

There is a large body of econometric studies of advertising expenditures. This research has been previously reviewed by Gallet and List (2003) as well as Chaloupka and Warner (2000). Gallet and List looked at 137 estimates of the effect of advertising expenditures on cigarette demand and attempted to calculate an overall elasticity. They found that the median advertising elasticity is .07 in the short run and .09 in the long run. These numbers are extremely small for elasticities and indicate that changes in advertising expenditures had a minimal impact on the demand for cigarettes. This suggests that advertising does not have a strong effect on the desire to purchase tobacco products. Similarly, Chaloupka and Warner reviewed many econometric analyses that investigated the effects of advertising expenditures on tobacco use and found no consensus concerning the effect of advertising on smoking. Andrews and Franke (1991) conducted a meta-analysis of 24 studies. All of these studies were time-series analyses that looked at the effect of advertising on cigarette demand. They concluded that there is a positive and elastic relationship between advertising expenditures and demand for tobacco products such that an increase in the former causes an increase in the latter. The exact level of elasticity could not be pinpointed since it is affected by time, which varies. Conversely, Saffer and Chaloupka (2000) contend that a comprehensive ban in OECD could cause a 5.4% decrease in tobacco use and 7.4% decrease in cigarette use. They also predict that in European countries, the eliminating of tobacco advertisements (which occurred progressively from 2001 to 2006) could decrease tobacco consumption by 6.3% and cigarette consumption by 7.9%. Thus, economic research is inconsistent with regard to the effect of advertising on smoking initiation.3.4 Aftermath of the MSA

Since the Master Settlement Agreement, researchers have attempted to determine if companies were following the agreement and the effect the MSA has had on the industry. There are three specific questions that they have addressed. The first is how advertising expenditures have changed. King and Siegel (2001) observed that overall advertising expenditures were increasing in the years shortly after the Master Settlement Agreement and thus concluded that the MSA had little effect on cigarette advertising in magazines. The study used data from 1995 to 1998 as the Pre-MSA expenditure figures and data from 1999 and 2000 as the post-MSA expenditures. The following studies help to explain this by using a data set that encompasses a larger time period and thus can better demonstrate potential repercussions from the MSA. Viscusi and Hersch (2009) agree with previous analyses that overall advertising expenditures rose after the MSA. However, they note that if one limits their data to magazine advertisement expenditures, the numbers decreased greatly from 1998 to 2005 (they found that expenditures decreased by 87%). However, they also note that overall advertising and marketing expenditures increased during that same span. They found that this increase was largely due to expenses related to promotional allowances (for example, paying retailers/wholesalers for using displays) and price discounts (giving retailers/wholesalers discounts so that they could sell the cigarettes at a lower price) tripling over that time period. This is an important fact since it illustrates that, despite the decrease in magazine advertising, the cigarette companies still found ways to market their products.

The second question that research has sought to answer is whether all companies responded to the MSA in the same way. Studies have found that Philip Morris and RJR responded to the MSA in drastically different manners. Alpert et al. (2008) found that overall magazine advertising expenditures fell by over 85% (from $365 million in 1998 to $53.1 in 2006). However, this number is skewed by the fact that Philip Morris, the market leader, greatly decreased its expenditures in 2001 and then totally ceased magazine advertisements in 2004. Other brands, such as RJ Reynolds, decreased their spending in 2001 but later increased their expenditures in 2003 and 2004. The below graph summarizes this information. Another study followed the cigarette advertisements in Sports Illustrated and Rolling Stone from 1994 to 2006 and found a similar result. Philip Morriss three major brands, Marlboro, Basic and Virginia Slims all decreased their advertising presence in these magazines following the MSA. Conversely, RJRs three main brands, Camel, Winston and Kool, increased their advertising presence in these magazines following the MSA (Sung & Hennink-Kaminski, 2008). Hamilton et al. (2002) postulate that the increase in advertising immediately after the MSA was a result of advertising dollars being freed up by the MSAs ban on outdoor advertising. However, this increase was heavily publicized and the public applied pressure on the companies to decrease their youth targeting. This led to a decrease in advertising that was led by Phillip Morris, which vowed to stop advertising in any magazine that has youth readership of 15% or more. RJ Reynolds refused to make this same pledge.

The third topic that has been investigated is the change in advertising placed in youth-oriented magazines. Alpert et al. (2008) used a Youth Index that determined the level of youth exposure to cigarette advertisements as a number. This index was first identified in a settlement agreement between the State of California and RJ Reynolds and assesses the exposure of children ages 12-17 to advertisements as compared to the general population. If the index is greater than 100, youth are disproportionately exposed to the advertisements. Between the years 1998 and 2000, identified as the early post-MSA years, all of the major manufacturers had an index of more than 100. However, after 2002, the index of these same manufactures went below the 100 threshold and stayed that way, except for RJR and Brown and Williamson (purchased by RJR later that year) which had indexes of 104 and 103 respectively, in 2004. This data shows that overall youth targeting seems to have fallen after the MSA but that not all firms reduced their focus at the same time.

Since the MSA is a relatively recent event, few studies have had the opportunity to analyze the effect of the MSA on smoking rates. One study that did conduct an investigation was Sloan and Trogden (2004). They took a national sample from 1990 to 2002 and used it to create a model to estimate potential the decision to smoke cigarettes. They found that, by 2002, smoking rates fell by 13% in the 18-20 and over 65 age groups and by 5% in the 21-64 age group. It must be noted that it is difficult to create a model that accurately predicts the decision to smoke cigarettes due to the plethora and complexity of the factors influencing that choice. Thus, while this study did find a sizeable decrease after the MSA, further studies are necessary to determine the true effect of the MSA on smoking rates.

4. Hypotheses

This study aims to address two questions. Firstly, how did the number of advertisements in general change both on a total number and individual company-level following the Master Settlement Agreement? Secondly, how did the number of advertisements in magazines with high youth exposure change on both a total and company-level following the Master Settlement agreement? In regards to the first question, I expect to find that overall advertisements will increase immediately following the MSA and then decrease. This prediction is based on previous research (Hamilton et al., 2002). Furthermore, I believe that RJ Reynolds will suffer show an immediate decrease in advertisements and then an increase in number of advertisements while Philip Morris will demonstrate an immediate increase in the number of advertisements and then a decrease in the long-term as explained by Hamilton et al. (2002). RJR data will show an immediate decrease because the MSA banned cartoon characters, a foundation of their marketing plan, and Philip Morris data will increase the amount they advertise immediately because of additional advertising funds made available by the MSAs ban on outdoor advertisements. In regards to the second question, I believe that in magazines with high youth exposure, overall advertisements will increase immediately after the MSA and then decrease. Additionally, RJR will immediately decrease their advertisements but then increase them in the post-MSA long run while Philip Morris will immediately increase their advertisements and then decrease their advertising in the long-run. This is again based on the banning of the cartoon characters that were the foundation of RJ Reynolds marketing plan and Philip Morris having additional advertising funds available and the ensuing public backlash. 5. Data and Methods5.1 Data

This analysis uses advertising data from the Smoking Cessation Advertisements (SCADS) archive, which contains content from 26 consumer magazines and is described in more detail in Avery et al. (2007). The archive was compiled by collecting all print advertisements for tobacco products, smoking cessation products, as well as smoking-related public service announcements (PSAs) that appeared between January 1985 and October 2005. The difference between an advertisement and a PSA is that an advertisement informs the reader about a product they can purchase (for example, Marlboro cigarettes), while a PSA transmits a message or an idea (such as smoking is unhealthy) to the reader. This study uses a subset of the overall database such that only the cigarette advertisements will be included in the data analysis.

The magazines included in the archive include: Better Homes & Gardens, Black Enterprise, Business Week, Cosmopolitan, Ebony, Essence, Family Circle, Glamour, Good Housekeeping, Jet, McCalls/Rosies, Modern Maturity, Money, National Geographic, Newsweek, People, Playboy, Readers Digest, Rolling Stone, Seventeen, Sports Illustrated, Time, TV Guide, U.S. News & World Report, Vogue, and Womans Day. Magazines were selected by determining the ten magazines with the highest readership (as determined by the 1998 Simmons National Consumer Survey) in 22 groups that were defined by race (3 groups), education (5 groups), income (5 groups), age (5 groups), gender (2 groups), and smoking status (2 groups). Since people in these groups often read similar magazines, the final set was comprised of 26 magazines, not the highest possible total number of 220 magazines ( if there were no overlap in the readership of the 22 groups). For example, Time might be in the top ten in readership for both one of the income groups and one of the education groups.

However, the 26 magazines used were not the 26 with the highest readership. For three of the magazines with the highest readership, it was not possible to obtain every issue. These three magazines were replaced with the next most read. Based on data from the National Consumer Survey and Audit Bureau of Circulations 2003 Magazine Trend Report, the 26 magazines actually used in the database constitute anywhere from 30% to 57.5% of overall magazine circulation in the United States. Some of the magazines included in the SCADs data set did not have any cigarette advertisements. More specifically, five of the magazines (Good Housekeeping, Readers Digest, Seventeen, Modern Maturity, and National Geographic) did not have any cigarette advertisements and thus were not used in this data analysis.

All advertisements in the data set were coded with the brand name, manufacturer, length of the advertisement, placement in the magazine, and sponsor (for PSAs). Undergraduate research assistants located the advertisements and then scanned them for electronic storage. The research assistants then coded the advertisements for the above information as well as content data (the number of people in the advertisements, type of surgeon generals warning and the appeal of the advertisement etc.). Ten percent of the issues of each magazine were independently checked by another research assistant. If an error rate above 10% was found, all issues of that magazine were recoded. This process was replicated until all magazines had an error rate below 10%. The number of pages of advertisements for the products in the SCADs data was also compared to the advertising expenditure data found from Competitive Media Reporting (CMR). A regression of monthly advertising expenditures on the number of SCADs advertisements in that month illustrates that the variation in the SCADs data explains most of the advertising changes (R-squared = .94). More information on the SCADs data set can be founded in Avery et al. (2007).

5.2 Econometric Model and Identification

The dependent variable in this analysis is the number of advertisements in a given month t in magazine m. This can change as a result of the calendar month, which magazines had advertisements that month, and if it was after the Master Settlement Agreement. This study will use one regression equation with a few small variations. This equation is:

Advertisements t,m = 0 + 1(Time) + 2(MSA) + 3(MSA*Time) + Month Dummies

+ Magazine Dummies + (1)

The first independent variable, Time, is an indicator of when the advertisement occurs. This variable ranges from 0 (January 1985) to 251 (December 2005). This variable will allow me to determine if there is a significant change in the number of advertisements over the course of the time period. The second independent variable, MSA, is a dummy variable indicating if the advertisement occurred before or after the Master Settlement Agreement. Since the settlement agreement was settled to at the end of November 1998, advertisements in January 1999 will be the first to have a value of 1 for this variable. January is used, in lieu of December, due to the delay intrinsic to advertising: advertisements for December publications are due before early November. However, it is still possible to make changes to an advertisement in a January publication at the end of November. I also included dummy variables to account for changes in the number of advertisements caused by the month of the year and the magazine in which the advertisement appears.

This equation will allow me to test both my first hypothesis (the number of advertisements will fall after the MSA) and third (the number of advertisements in magazines with high youth exposure will fall after the MSA). The equation will be used without omitting any data and as such, if 3 is significant and negative, I can conclude that following the MSA, tobacco advertisements declined. The third hypothesis will be tested in a similar manner but with the sample restricted such that only advertisements in magazines with youth exposure will be included. Thus, 3 will measure the rate at which the number of cigarette advertisements changed in youth exposure magazines following the MSA.

In order to test hypotheses two and four, the sample will also be restricted. Hypothesis two will be tested by running the regression equation twice, once with only the data concerning Philip Morris advertisements and another time with only the data concerning RJ Reynolds advertisements. This will also be done for hypothesis four, but the data will be further constrained so that it is only the advertisements for the specific companies in high youth exposure magazines.

A spline regression model was considered for this analysis but was ultimately deemed counterproductive due to the nature of what is being tested. The Master Settlement going into effect is likely to have an immediate effect on the advertising market since some companies, such as RJ Reynolds, had marketing plans using practices banned by the MSA. As such, they are likely to have immediate reactions to the MSA. A spline regression would get rid of this immediate change which not only excludes a vital part of the analysis of the MSAs impact but also has the potential to negatively influence estimates of the long-term effects of the MSA.6. Results

6.1 Descriptive Statistics

There were 25,459 advertisements in the data set. These advertisements were distributed between 21 different magazines. Below is a table listing the magazines in descending order by the average number of cigarette advertisements in an issue of the magazine from January 1985 until October 1985. Table 2. Average number of cigarette advertisements in each magazine issue, 1985-2005MagazineAverage number of cigarette advertisements per issue

Playboy6.14

Cosmopolitan5.47

Glamour4.41

McCall/Rosie's3.84

Better Homes & Gardens3.64

Vogue3.63

Ebony3.58

Family Circle3.34

People3.27

Essence3.21

Woman's Day3.11

Sports Illustrated2.52

TV Guide2.51

Rolling Stone1.79

Jet1.33

Time1.31

Newsweek1.04

Money0.90

Black Enterprise0.90

US News & World Report0.74

Business Week0.01

The above table was created by dividing the total number of advertisements in each magazine by the number of issues published during the time period. By using this calculation as a means to rank the magazines, one can control for the frequency of release of the magazines. For example, the results will not be deceptive and make it appear as though Sports Illustrated had more advertisements than Playboy on a per-issue basis.

Figure 1 in the appendix contains a graph of the number of advertisements per month from January 1985 until October 2005. The blue bars represent the number of advertisements in each pre-MSA month and the red bars the number of advertisements in each post-MSA month. Descriptively, the data shows an overall downward trend. Long before the MSA, the number of cigarette advertisements was falling. The greatest number of advertisements occurred in January 1986, when there were 269 advertisements. Following that month, the number of advertisements fell greatly before leveling off and varying between approximately 150 and 200 advertisements per month, through February 1988, when the number dropped to 131 advertisements. Subsequently the number increased again but, after June 1989 the number of advertisement plummeted until reaching a low of 29 advertisements in February 1994. The number started to fluctuate again but never again reached the 200 advertisement plateau. All in all, the general trend was already a decrease in the number of advertisements years before the MSA was agreed upon by the state attorneys general and the tobacco industry.

There are a number of potential explanations for the large fall in advertisements in the late 1980s and early 1990s. During this same time period, tobacco companies simply spent less on magazine advertisements. In 1985, tobacco companies spent approximately $400 million (or 16%) of their advertising and promotional expenditures/budgets on magazines but by 1993, this number was as low as approximately $235 million (or 3.9%). At the same time, overall advertising expenditures were increasing as companies were spending more money on promotional allowances which increased from about $630 million (26.4%) in 1986 to $1.9 billion (38.1%) in 1995. The diversion of funds to other advertising methods would account for the large drop in the number of print advertisements. In fact, 1993 is one of the lowest advertising years during the pre-MSA advertising period and 1999 one of the highest (after 1990). The latter coincides with one of the highest expenditures of $377 million. The above trend, as well as the large drop off in magazine expenditures after 1999, coincides with the data represented in Appendix 1 (Federal Trade Commission, 2009). 6.2 The effect of the MSA on tobacco advertisements in all magazines

The first hypothesis tested was that overall advertisements would increase immediately following the MSA and then decrease. Table 3 (below) contains the regression results for this analysis and for the analysis for hypothesis 3.Table 3. Coefficients for Regressions investigating Hypotheses 1 and 3VariableAll Magazines

(1)Youth Exposure Magazines

(4)

Constant9.403**(38.14)16.226**(44.53)

Time-.047**(-46.59)-.047**(-25.21)

MSA2.269**(3.55)7.875**(6.75)

Slope-.001(-.34)-.032**(-5.54)

R2.6677.6412

NOTE. Other controls include the month the advertisements appeared (11 categories in both regressions) and the magazines they appeared in (20 categories in regression 1 and 7 categories in regression 3). Regression 1 had 5,229 observations and regression 4 had 1.992 observations.

* Statistical significance of coefficient estimates for p-values .10

** Statistical significance of coefficient estimates for p-values .001

The models reported in Table 3 include a diverse set of control variables. Regression 1 has controls for both the month in which the advertisement appeared as well as the magazine it appeared in. Regression 3 also has controls for the above but uses a subset of the overall set of magazines (only 8 magazines compared to the 21 used in regression 1). The hypothesis was supported by the data analyzed. A positive, and significant, coefficient on the MSA variable illustrates an increase in the number of advertisements once the MSA went into effect. More specifically, there was an average increase of 2.269 advertisements in January 1999. Also the slope variable (which represents the MSAs effect on the trend of advertisements) was not significant. If it were, it would have had a minimal effect on the overall trend since it would only have increased the rate at which advertisements fell by .001 per month, a negligible effect. In order to easily analyze the effect of the MSA, one can compare the data from the month the MSA went into effect (January 1999) with that of five years later (January 2004). Based on the regression, the number of advertisements in January 1999 was 1.805 advertisements and the number of advertisements in January 2004 was -1.035 (signaling that there were no more advertisements). It is important to note that these numbers use the insignificant slope coefficient. Therefore, the MSA did initially cause an increase in advertisements but this increase was counteracted by the generally negative trend. In fact, by February 2003, there were fewer advertisements (1.407) than in December 1998 (1.545). Thus, the first hypothesis is supported by the results of this study.6.3 The different reactions to the MSA by RJR and Philip Morris in all magazines

The second hypothesis tested was that RJ Reynolds would incur an immediate decrease in their number of advertisements and then an increase and that Philip Morris would have an immediate spike in advertisements and then a decrease. Table 4 (below), contains the regressions results for this analysis as well as for the regressions with which to analyze the fourth hypothesis.Table 4. Coefficients for Regressions investigating Hypotheses 2 and 4VariableAll MagazinesYouth Exposure Magazines

Philip Morris

(2)RJ Reynolds

(3)Philip Morris

(5)RJ Reynolds

(6)

Constant3.773**(29.72)4.019**(28.99)5.335**(29.80)6.943**(32.75)

Time-.013**(-25.30)-.023**(-40.06)-.006**(-6.99)-.024**(-22.66)

MSA3.116**(9.60)-1.664**(-4.63)6.641**(11.59)-1.284*(-1.89)

Slope-.017**(-10.24).0157**(8.79)-.040**(-13.95).015**(4.37)

R2.5276.5399.4990.4863

NOTE. Other controls include the month the advertisements appeared (11 categories in both regressions) and the magazines they appeared in (20 categories in regression 1 and 7 categories in regression 3). Regressions 2 and 3 both had 5,229 observations and regressions 5 and 6 both had 1.992 observations.

* Statistical significance of coefficient estimates for p-values .10

** Statistical significance of coefficient estimates for p-values .001

This hypothesis is entirely supported by the model above. As expected, Philip Morris greatly increased their advertisements but then they quickly decreased the number in each subsequent month (before the MSA, the number of advertisements decreased by an estimated .013 per month, after the MSA that slope increased to .03 advertisements per month). Conversely, RJ Reynolds immediately decreased their estimated number of advertisements but then had a post-MSA slope that was positive, indicating that they were adding more advertisements, at a rate of .0157 advertisements per month. However, because of the nature of this model, the true slope for the model after the MSA is the sum of the slope and constant coefficients, which in this case is still negative, but is minute (only .0073). In fact, this coefficient is so small that it would take approximately 11 years for RJ Reynolds to have an estimated number of advertisements decrease by 1. The radical difference between the approaches the two companies took had long-term ramifications on the market. Based on this data, it would take approximately 210 months, or 17.5 years, for the difference in advertisements between Philip Morris and RJR to reach their pre-MSA levels. Figures 2 and 3 in the appendix depict the change in the number of advertisements for RJ Reynolds and Philip Morris and illustrate the trend the model represents.A good way to compare the trends of each of the companies is to compare the number of advertisements placed in January 1999 to those in January 2004, a five year difference. In the first time period, Philip Morris placed an estimated 3.836 advertisements and RJ Reynolds 2.282, indicating, according to the model, they had already stopped advertising. We know that in reality, they had not stopped advertising but this estimation of the number of advertising is not surprising. At the onset of the data set, RJR was greatly decreasing their advertising. Thus, the regression must account for this when creating a model and, as such, the regression hits the x-axis (indicating an expected number of advertisements of 0) well before RJR actually stopped advertising. In fact, according to the model, the decrease in advertisements resulting from the MSA put RJ Reynolds below the x-axis (in December 1998, RJR had an estimated number of advertisements of .220). After five years, Philip Morris placed, on average, 2.093 advertisements, and RJR had an expected number of advertisements of -2.697. 6.4 The effect of the MSA on tobacco advertisements in youth exposure magazines

The third hypothesis was tested in youth exposure magazines, it was expected that the number of advertisements would first rise, then fall after the enactment of the Master Settlement Agreement. The estimation of the model used to test this can be seen above in Table 3. This hypothesis is supported by the estimated model; namely, the MSA variable was positive and significant and demonstrates an approximate increase of 7.875 advertisements once the MSA went into effect. Additionally, following the MSA the number of advertisements started falling more rapidly as a result of a negative slope with a larger magnitude. The original rate was -.047 advertisements per month. After the MSA that rate increased to -.078 advertisements per month (this number was computed by combining the coefficients on time and slope). A good way to get an idea of the result of these changes is to look at the number of ads in January 1999 and January 2004. In the former period, there were approximately 13.572 advertisements, in the latter approximately 8.931. The increased rate at which advertisements fell after the MSA in the youth exposure magazines helped to lower the overall number of advertisements but, within this studys dataset, it was never able to fully counteract/counterbalance the increase in the MSA variable. It would take approximately 8 years, 8 months and 5 days to counteract this increase but the dataset only has data extending to October 2005, short of the above milestone.

It was theorized that there would be an increase in the number of advertisements following the Master Settlement Agreement, but the magnitude of this change was particularly surprising. The number of advertisements almost doubled between December 1998 and January 1999 as a result of what would seem to be the Master Settlement Agreement. One possible explanation for this abnormally large increase is that the tobacco conglomerates sought to immediately determine the effectiveness of post-MSA advertising. As such, there was a large increase in January 1999. However, shortly afterwards the firms decided that further advertising was not beneficial and reduced the amount of advertising they were placing in all magazines. Another possible explanation is that tobacco companies greatly increased their advertising presence in these magazines shortly after the MSA so as to test the waters and effectiveness of advertising under the new regulations of the MSA. As in the first explanation, the companies deemed the advertisements to be ineffective and pulled them, contributing to the significantly more rapid rate of decrease in the advertisements. Nevertheless, directly after the MSA the number of advertisements in youth exposure magazines greatly increased but the rate at which the number of magazines fell increased as well.6.5 The different reactions to the MSA by RJR and Philip Morris in youth exposure magazinesThe fourth hypothesis tested was that in youth exposure magazines, RJ Reynolds would immediately decrease their number of advertisements after the MSA but increase them in the long term; and that Philip Morris would react conversely by immediately increasing their number of advertisements and then, in the long term, decreasing them . Table 4 (above), contains the regressions results for this analysis.This hypothesis was also fully supported by the model. As predicted, RJ Reynolds immediately decreased their number of advertisements but then increased them in the long run. In fact, RJ Reynolds decreased their number of advertisements by an estimated 1.684 advertisements in January 1999. Afterwards, RJ Reynolds had a positive slope of .015, indicating that after the MSA they were increasing the number of advertisements by .015 per month. However, this coefficient was overpowered by a negative coefficient in time with a greater magnitude. As such, the net slope of RJR after the MSA was still negative, but minimal (advertisements decreased by approximately .009 advertisements per month). Conversely, Philip Morris greatly increased their number of advertisements in January 1999. The company added 6.641 advertisements in January 1999, more advertisements than they had started with in January 1985 (according to the model). However, they had a radical increase in the rate at which the number of their advertisements fell. Before the MSA, advertisements were decreasing at an approximate rate of .006 per month, essentially no decrease. After the MSA, that rate increased to .046, over a 600% increase. Figures 4 and 5 in the appendix are graphs of the number of advertisements by each of the manufacturers throughout the time period and illustrate where the models coefficients come from. A good way to see the true effects of these coefficient changes is to examine the number of advertisements each company had in January 1999 and January 2004. In January 1999, Philip Morris placed an estimated 9.956 advertisements while RJR placed an estimated .461 advertisements. After five years, Philip Morris had an estimated 7.242 advertisements while RJR an estimated -.070 advertisements. Over those five years, Philip Morris decreased their advertising by approximately 2.5 advertisements while RJR did not decrease theirs by even one advertisement7. Discussion and Conclusions

The results of this study reaffirm some aspects of previous research but also bring new information to light. Numerous studies have found that following the Master Settlement magazine advertising decreased. Some of these studies have determined this by analyzing magazine advertising expenditure data (Alpert et al., 2008; Viscusi and Hersch, 2009). However, that method does not take into account changes in the cost of advertising or increased efficiency in the creation and publication of advertisements. Nevertheless, this studys findings are generally consistent with the previously mentioned findings. Aside from the increase that coincided with the MSA going into effect, the number of advertisements did indeed fall. However, this study was unable to conclude that the MSA caused the magazine advertisements to fall at a faster rate. The first model found that between 1985 and 2005, advertisements fell at an average rate of .047 per month but did not find that the above decline increased after the MSA. This is an interesting result, in that the lack of an increase in the rate is not contradicted by past research but, at the same time, one would have thought the MSA would have had more of an effect. Evidently, the large decreases in magazine advertisements, such as the 85% decrease between 1999 and 2006 from Alpert et al. (2008), were not a result of the MSA, but of the generally decreasing trend that dates back to at least 1985. Therefore, this study helps illuminate the context of previous research that believed the MSA was responsible for the decrease in magazine advertising and, on the contrary, suggests that the decrease actually had little to do with the MSA.

Past research clearly indicated that Philip Morris and RJ Reynolds reacted to the Master Settlement Agreement in different ways. The results of this study are no different. These studies found that after the Master Settlement Agreement, Philip Morris decreased their advertising presence but RJ Reynolds increased it (Alpert et al., 2008; Sung & Hennink-Kaminski, 2008). Interestingly, this study found an interesting addition to the above conclusion. Following the MSA, Philip Morris did, in the long run, decrease their advertising presence in magazines. However, in January 1999, they first greatly increased their magazine presence. Following that increase, the rate at which they pulled their advertisements doubled but the increase is still noteworthy. In fact, according to the model it took over 8 years for Philip Morris advertisement total to reach the point it had been in December 1998. Thus, the decreased advertising presence of Philip Morris is deceiving at face value. They may have rapidly decreased their number of advertisements but only after having increased their estimated number by approximately 200%. Conversely, previous studies found that RJR at first lowered their number of advertisements (following the MSA) but then raised the total (Alpert et al., 2008; Sung & Hennink-Kaminski, 2008). This would help explain the coefficients found when modeling RJRs advertising rates. Both of the models that used only RJR advertisement data (regressions 3 and 6), found that right after the MSA, the company lowered its estimated number of advertisements by either 1.284 advertisements or 1.664 advertisements (depending on the inclusion of all magazines or only youth-exposure ones). The rate at which their advertisements then fell decreased to an almost negligible level due to a positive value of the coefficient on the slope variable. It is likely that this coefficient was positive because of the large increase that was reported in previous research, and found in this study. Thus, this study found results similar to those of previous studies in that RJ Reynolds and Philip Morris reacted to the Master Settlement Agreement in different manners.

Another main focus of this study was the effect of the MSA on advertisements in youth-exposure magazines. Previous research found that after the MSA, youth exposure remained high but fell after 2002, to the point where only RJR and Brown and Williamson ( later purchased by RJR) were deemed to have high youth exposure (Alpert et al., 2008). The results of this study are consistent with the general trend of the industry described above. The model used to estimate the number of advertisements in youth-oriented magazines found that after the MSA, the number of advertisements increased by approximately 7.875 but, the rate at which advertisements fell nearly doubled as well, helping to offset this change. While that is a large increase, it is not that large in the context of the model. The constant term in the model is 16.226, the largest in any of the models. In the other models, the MSA variable was similar in magnitude to the constant term so the increase it caused in January 1999 was significant. However, in this case the increase caused by the MSA is much smaller than the constant term. Although the increase is not totally consistent with the trend previous research of youth-magazines has found, it is consistent with the trend found in the overall body of literature. As previously stated, after the MSA the number of advertisements increased before sharply falling and subsiding to a minimal level. The trend found in this model is comparable in that there is, at first, a large increase and then the rate at which the advertisements decrease almost doubles, thus signifying the sharp fall.

Previous studies have also analyzed the way Philip Morris and RJ Reynolds reacted to the MSA within youth-exposure magazines. Alpert et al. (2008) found that between 1998 and 2008, RJR consistently targeted youth with advertising, more than any other company except one (Brown and Williamson targeted them more in 2000) in each year. Conversely, in most years, Philip Morris was at the bottom of this measure. The model generated in this study found that overall Philip Morris targeted the youth market more heavily. Once the MSA came into effect, Philip Morris increased their advertising by approximately 6.641 advertisements but also greatly increased their slope (from .06 to .046). Though seemingly a large slope increase, at that rate, it would take approximately 12 years before the 6.641 increase is reversed and Philip Morris could reach the same advertisement level as before the MSA. Conversely, RJ Reynolds decreased their advertisements after the MSA by about 1.284 advertisements but had a positive post-MSA slope value. Nevertheless, the coefficient was not enough to overpower that of the general slope so the net slope of the RJR advertisement line after the MSA remained negative. This denotes a drastically different picture of RJ Reynolds than previous research has found. According to the data, RJR actually decreased their presence in magazines with high youth-exposure while Philip Morris increased theirs. A likely reason for RJRs coefficients is that the MSA outlawed a primary part of RJRs advertisements: Joe Camel. Thus, in January 1999 they had to decrease their advertisements and spend time devising a new strategy. Once implemented, the company significantly increased their advertisements, but not enough to make the coefficient on slope large enough to outweigh the coefficient on time, therefore resulting in a net negative post-MSA slope. In sum, the results of this study are at odds with previous research regarding the tactics used by RJ Reynolds and Philip Morris after the Master Settlement Agreement.

This study has a number of limitations. First, the data stops in October 2005. The data set goes back to over a decade before the Master Settlement Agreement but has little data afterwards. When analyzing the effect of a policy, it is important to get an accurate picture of the situation both before and after the policy is enacted. However, since the MSA was only enacted 11 years ago, it is difficult to have the added pertinent data due to the time necessary to input and process it. Nonetheless, more data would help obtain more accurate coefficients in the model and give more insight into the effect of the regulations on the tobacco advertising market. Additionally, it would be interesting if this study was replicated using information that included the cost of advertisements. A possible confounding variable in this analysis is that increases in the costs of advertising (both in the formulation of advertisements and magazines raising their fees) could have caused some of the decrease in advertising throughout the entire data set. The current models are accurate models (each one having a relatively high r-squared) but there is room for improvement with the addition of the aforementioned controls which would allow one to better analyze the true effect of the MSA on the advertising market. A third limitation is that it is difficult to determine exactly when the MSA first affected the market. This study uses January 1999; a month and a half after the MSA went into effect, as the starting point of analysis. This time was chosen after speaking with a number of marketing experts on the amount of time it takes to alter the advertisements in magazines in relation to when magazines go to print. However, it is conceivable that the companies knew about the forthcoming regulations in August 1998 and, as such, the impact of the MSA was beginning to be felt as early as November 1998. Further insight into when the MSA started to transform the market would also help determine the true effect of the MSA.

This study found that the MSA caused an immediate increase in the number of advertisements followed, in most cases, by an increase in the rate at which advertisements fell. Additionally, a stark difference between the way RJ Reynolds and Philip Morris reacted to the Master Settlement Agreement was determined in that RJ Reynolds immediately decreased their number of advertisements and they lowered the rate at which they were leaving the market to a negligible level. Conversely, Philip Morris significantly increased their advertisements following the MSA but in the long run they decreased their advertisements more rapidly. The above was also found to be true within magazines with high youth exposure, except that the baseline number of advertisements and the increases caused by the MSA were much larger in magnitude, suggesting that the MSA may not have completely prevented the companies from marketing towards youth. In the short run, the MSA was unsuccessful in that advertisements actually increased but it was successful in the long run because it contributed to the speed with which the number of advertisements fell.Works Cited

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