I read this article, but I don't believe the conclusion, because it goes against my economic understanding of demand curves. As far as I personally believe (though I only have one economics paper, and I'm no Warren Buffeett), adding taxes to any item must decrease quantity sold, regardless of the reason for the taxes or whether consumers know about it.
Here is something to think about:
- Suppose the retail price of sugar is $1 per pound today.
- Let's think about the situation where adding a sugar tax didn't decrease consumption. i.e. suppose that if after a tax consumers have to buy for $1.50 per pound still they will buy just as many as if they have to buy for $1 per pound. They are just not price-conscious.
Isn't that possible? That's what the article says! It says that consumer buy just as many cans at $1.52 as $1.40, if they don't know about the taxes! So maybe they just don't care about $0.12 that much, I mean is that going to stop you from getting a drink?
So, we can can sort of imagine that, right? For the $1.50 versus $1 for a pound of sugar example, if you're going to bake a cake, will having to pay $1.50 rather than $1 for the sugar stop you? How can we know this isn't the case? Perhaps it really is a situation where whether it's $1 or whether it's $1.50 has the same number of units sold, consumers just don't care that much, unless you mention a big scary word like "taxes!!' to them.
So, here's something to think about if that's the situation:
-> If consumers are just as happy to pay $1.50 as $1, then why don't stores sell at $1.50 today? I mean they'd sell just as many, right! They'd just get an extra free $0.50 on each one! Why don't they do that?
So is it out of the goodness of their hearts? Or, do they not know their customers, are they leaving all this money on the table, have they never experimented with prices?
No. They don't sell at $1.50 because they would sell fewer units. Much fewer units. So much fewer units that even 50 cents in free profits on each and ever unit would cause them to lose more customers than the free profits are worth. That's why they don't set the higher prices - because there is less demand there.
This proves, though a bit informally, that taxes will always decrease demand: if they didn't, the sellers would already have set their price at the higher quantity even without the taxes!
What is a more likely explanation?
So, I don't believe the conclusion of the study. It concludes that it is mere mention of the taxes that causes some people to reduce their consumption, and otherwise their consumption remains price-inelastic. I think a more likely explanation is that by mentioning the sugar tax, consumers are reminded that the product has sugar in it, which they know makes them fat, is bad, and is so bad that it has a special tax on it. This reminds them to choose another product.
How to test this explanation:
They could try selling sugar drinks at the same $1.40 as non-sugar drinks, and write on it "Includes SF Sugary Drink Tax" in the test group and not include that notice in the control group.
(I would subsidize the taxes for the purposes of the experiment, by reducing the retailer's profits). I predict that the one that mentions the sugar tax should include fewer sold than the one that doesn't mention it - because it reminds consumers that sugar is bad, which is what I believe is the explanation for the effect observed.)
The bottom line is, you can be quite sure that taxes work for sure to greatly reduce the number of units sold. If the study concludes that without mentioning the sugar tax, consumers buy just as many at $1.52 as at $1.40, then why wasn't it sold for $1.52 before the taxes?
It might be your last point is the most significant, this is a psychological effect, not economic. From my basic understanding, economics often assumes rational actors, but humans are not always rational. Maybe those willing to pay more will get used to the new, higher price but what changes their actions is the implicit warning of "Hey, this has loads of sugar!". There might be a parallel here with cigarette sales, where both price rises and displaying warnings on packets were used to encourage people to quit.
>Maybe those willing to pay more will get used to the new, higher price but what changes their actions is the implicit warning of "Hey, this has loads of sugar!".
It would be cool to test that effect by itself! Since retailers set their prices, it is possible to run a controlled experiment like I showed - where the left side has sugar, the right side is the sugar-free version (not subject to taxes):
(The two rows are meant to represent two different vending machines, I didn't mark it super clearly.)
In the test group (bottom row) you would include "Includes SF Sugary Drink Tax" but in the control group (top row) you do not include that label: this would isolate the effect of the label!
(In effect, on the top row you just reduce your profit as the point of sale merchant, without telling the customer about it.)
What do you think the effect would be? Same sales in top row (control group) and bottom row (test group) or, do you agree with the authors that telling the customers about the effect is the thing that causes it? (In that case the bottom row would have much lower sales than the top row.)
I predict that the sales would be similar between the test and control group in the experiment I suggest (after all it is the same product at the same price!) but I don't know for sure.
I think I've worked on customer facing products enough to know never to assume customer actions and especially not to assume they're rational! Price factors are unimportant to some people and even if it is an important factor, adding a secondary decisions factor, the sugar content, substantially alters the decision being made.
This study seems too small to prove a difference but a interesting pointer for more research about how to improve the effectiveness of a sugar tax. I prefer it when policy decisions are evidence based.
6 comments
[ 2.8 ms ] story [ 29.1 ms ] threadHere is something to think about:
- Suppose the retail price of sugar is $1 per pound today.
- Let's think about the situation where adding a sugar tax didn't decrease consumption. i.e. suppose that if after a tax consumers have to buy for $1.50 per pound still they will buy just as many as if they have to buy for $1 per pound. They are just not price-conscious.
Isn't that possible? That's what the article says! It says that consumer buy just as many cans at $1.52 as $1.40, if they don't know about the taxes! So maybe they just don't care about $0.12 that much, I mean is that going to stop you from getting a drink?
So, we can can sort of imagine that, right? For the $1.50 versus $1 for a pound of sugar example, if you're going to bake a cake, will having to pay $1.50 rather than $1 for the sugar stop you? How can we know this isn't the case? Perhaps it really is a situation where whether it's $1 or whether it's $1.50 has the same number of units sold, consumers just don't care that much, unless you mention a big scary word like "taxes!!' to them.
So, here's something to think about if that's the situation:
-> If consumers are just as happy to pay $1.50 as $1, then why don't stores sell at $1.50 today? I mean they'd sell just as many, right! They'd just get an extra free $0.50 on each one! Why don't they do that?
So is it out of the goodness of their hearts? Or, do they not know their customers, are they leaving all this money on the table, have they never experimented with prices?
No. They don't sell at $1.50 because they would sell fewer units. Much fewer units. So much fewer units that even 50 cents in free profits on each and ever unit would cause them to lose more customers than the free profits are worth. That's why they don't set the higher prices - because there is less demand there.
This proves, though a bit informally, that taxes will always decrease demand: if they didn't, the sellers would already have set their price at the higher quantity even without the taxes!
What is a more likely explanation?
So, I don't believe the conclusion of the study. It concludes that it is mere mention of the taxes that causes some people to reduce their consumption, and otherwise their consumption remains price-inelastic. I think a more likely explanation is that by mentioning the sugar tax, consumers are reminded that the product has sugar in it, which they know makes them fat, is bad, and is so bad that it has a special tax on it. This reminds them to choose another product.
How to test this explanation:
They could try selling sugar drinks at the same $1.40 as non-sugar drinks, and write on it "Includes SF Sugary Drink Tax" in the test group and not include that notice in the control group.
I would do it like this:
https://ibb.co/hXmGt9F
(I would subsidize the taxes for the purposes of the experiment, by reducing the retailer's profits). I predict that the one that mentions the sugar tax should include fewer sold than the one that doesn't mention it - because it reminds consumers that sugar is bad, which is what I believe is the explanation for the effect observed.)
The bottom line is, you can be quite sure that taxes work for sure to greatly reduce the number of units sold. If the study concludes that without mentioning the sugar tax, consumers buy just as many at $1.52 as at $1.40, then why wasn't it sold for $1.52 before the taxes?
Where this b...
>Maybe those willing to pay more will get used to the new, higher price but what changes their actions is the implicit warning of "Hey, this has loads of sugar!".
It would be cool to test that effect by itself! Since retailers set their prices, it is possible to run a controlled experiment like I showed - where the left side has sugar, the right side is the sugar-free version (not subject to taxes):
https://ibb.co/hXmGt9F
(The two rows are meant to represent two different vending machines, I didn't mark it super clearly.)
In the test group (bottom row) you would include "Includes SF Sugary Drink Tax" but in the control group (top row) you do not include that label: this would isolate the effect of the label!
(In effect, on the top row you just reduce your profit as the point of sale merchant, without telling the customer about it.)
What do you think the effect would be? Same sales in top row (control group) and bottom row (test group) or, do you agree with the authors that telling the customers about the effect is the thing that causes it? (In that case the bottom row would have much lower sales than the top row.)
I predict that the sales would be similar between the test and control group in the experiment I suggest (after all it is the same product at the same price!) but I don't know for sure.
This study seems too small to prove a difference but a interesting pointer for more research about how to improve the effectiveness of a sugar tax. I prefer it when policy decisions are evidence based.
> According to Mr Veran, popular brands such as Sprite, Lipton Ice Tea, Seven Up and Fanta have all reduced their sugar content.
> Drinks by giants Schweppes, and Lipton Ice Tea, were found to contain 40% less sugar; while Seven Up and Fanta had cut sugar by 30%, he said.
https://www.connexionfrance.com/French-news/The-sugary-drink...
Focusing on consumer is useless, they'll buy things no matter what
What are they gonna do next? Put another tax on pizza, pasta, cake, anything sweet, and all carbs?