The supposed benefits of e-cigarettes are front and center today, with news that the FDA will propose new rules for regulating the devices. At stake is the future of an industry already generating $2 billion in revenue in the U.S., and expected to grow dramatically, perhaps even outstripping the market for traditional cigarettes. But is this new market a replacement for the existing cigarette market, or is it creating new demand? The former would likely mean a substantial improvement in public health; the latter would mean a steep increase in nicotine addiction.

“The regulators face a conundrum,” according to John Quelch, a professor at Harvard Business School and at the Harvard School of Public Health, and author of a recent HBS case study on e-cigarettes. “On the one hand, the e-cigarette does represent a waypoint for a smoker to be able to potentially quit. That’s the plus side. The minus side is that the e-cigarette may draw into nicotine usage an entire array of new users.”

So far, the growing popularity of e-cigarettes has mostly been among current and former smokers, as the case study documents. To date, e-cigarettes seem to be replacing an existing market more than creating a new one, although there is no guarantee that this will continue.

What worries public health experts is the third bar: by 2011, just under 2 million U.S. adults who never smoked tobacco had tried e-cigarettes. More worrying still, nearly 7% of U.S. high school students had tried e-cigarettes in 2011-2012, and 2% were current e-cigarette smokers. While the majority of current e-cigarette smokers in the group were also tobacco smokers, the vast majority of those students who tried e-cigarettes were not. It’s impossible to say for sure how many of these non-smokers who try e-cigarettes will end up taking up the habit. Worse still is the possibility that e-cigarettes might be a gateway into tobacco smoking.

While research into e-cigarette use is limited to date, the case authors attempted to estimate the net impact of e-cigarettes on tobacco smoking. As the chart below illustrates, they believe that an uptake in tobacco smoking by those who try e-cigarettes is mitigating the decline of the tobacco cigarette market.

Sales of tobacco cigarettes have been falling in the U.S. for some time, declining 27% between 2000 and 2011. But if some users who try e-cigarettes will end up switching to tobacco as the case suggests, e-cigarettes’ ability to accelerate that decline will be partially offset. Quelch, says that increased regulation of e-cigarettes could also have the perverse effect of slowing the decline of tobacco cigarette sales.

“If you have the e-cigarette industry regulated the same way as tobacco, then basically all marketing is shut down,” he told me. “New entrants in the e-cigarette industry can no longer easily establish their brands.” Tobacco companies’ control of the e-cigarette market — made possible by a series of acquisitions starting in 2012 — “enables them to control the price of the product,” said Quelch. “Through controlling the price and distribution of the product they can then control or influence heavily the migration speed of tobacco users to e-cigarette usage.” Without much competition they can keep e-cigarette prices high to discourage tobacco smokers from switching.

The regulations announced this week are modest, prohibiting e-cigarette sales to minors and subjecting the product to FDA review. Advertising of e-cigarettes remain legal, as do flavors like grape and bubblegum that seem aimed beyond current smokers. For now, at least, it is perfectly legal to target e-cigarettes to an entirely new market.