Cross-Price Elasticities Between Cigarettes and Heated Tobacco Products in South Korea

South Korea's smoking-attributable socioeconomic burden remains heavily concentrated among men, accounting for over 90% of the total cost. The 2015 tax reform produced only a short-lived response, with male smoking prevalence quickly rebounding to 40.7% by 2016 (Han, 2019). While prevalence subsequently fell to 30.0% by 2022 as heated tobacco products (HTPs) expanded to 14.6% of the market, this trajectory remains well above the Health Plan 2030 target of 25% (Korea Health Promotion Institute, 2023). Although the initial market transition toward alternative nicotine products was likely catalyzed by product innovation rather than domestic price dynamics, as headline tobacco prices have remained relatively unchanged since 2015, the effective prices paid by consumers varied based on changing individual product mixes and utility optimization via newly available, less harmful options. To isolate these cross-product dynamics and the impact of price on it, we adopt a regional perspective. Using annual panel data from five Asian markets (2019–2025), we estimate a log-log panel regression with country and year fixed effects to identify the market-level cross-price elasticity of HTP demand with respect to cigarette prices. Our empirical findings reveal a robust cross-price elasticity of 2.25 (SE = 0.86; p < 0.01): a 1% increase in cigarette prices is associated with a 2.25% increase in HTP sales volume. Importantly, the South Korea interaction term is statistically non-significant, demonstrating that the region's high cross-price elasticity is fully representative of the Korean market and confirming a strong willingness among domestic consumers to substitute categories based on relative price signals. These findings confirm that relative pricing between product categories is a quantitatively significant determinant of the composition of tobacco demand. Consequently, South Korea's recent extension of its tobacco tax framework (Korea Policy Briefing, 2025) creates a timely opportunity to calibrate rates by relative product risk and empirical substitution elasticities, thereby preserving the economic incentives for smokers to transition away from combustible cigarettes. While the extent to which illicit market supply absorbs part of this price response remains an open empirical question due to South Korea's expanding unregulated cigarette trade since 2015, our empirical findings provide a directly applicable empirical foundation to significantly alleviate the South Korean smoking crisis through targeted, risk-proportionate fiscal design.