Drawing from articles freely available online and at the Mackinac Center, this piece paints a picture of the differences between liquor distribution both within the Midwest and throughout the United States.
Drawing from articles freely available online and at the Mackinac Center, this piece paints a picture of the differences between liquor distribution both within the Midwest and throughout the United States.
Drawing from articles freely available online and at the Mackinac Center, this piece paints a picture of the differences between liquor distribution both within the Midwest and throughout the United States.
Microeconomics 5/4/11 Monopolies in the United States of America The subject of monopolies in the United States of America is broad enough to generate libraries of literature dealing exclusively with that topic so this paper will focus on the nature of alcohol and tobacco distribution in the United States of America. Each of these industries is massive and requires a great deal of further study in itself but purposes of this paper will be satisfied by a close focus on liquor distribution in the united states and how retailers acquire these products. Despite its free-market inclinations, historically, the United States of America has not provided a free market for the distribution of alcohol and black markets emerged to satisfy the demand for alcoholic beverages. (1) From 1919 to 1933, there was a federal ban on production and dissemination of alcoholic beverages which was commonly known as the prohibition. Even today, certain states enforce a litany of regulations regarding the sale and consumption of liquor. Many advocates of the free market are not even aware of the exceptions they tolerate and even advocate because situations where these issues might be considered are not often a part of the marketplace of ideas the modern university has evolved to become. Though the term beverage control state and alcohol monopoly has nearly disappeared from the colloquial vocabulary, many states still conduct or heavily restrict all the distribution of distilled spirits within their jurisdiction. In other words, not only is the government picking and choosing the winners but in many circumstances they are prohibiting competing interests from vying for the rights to distribute beverages by usurping that role themselves. Without going into great detail regarding why free market alternatives are superior to government monopolies and government sanctioned cartels, it should be clear that the status quo is ripe with opportunities for favoritism, nepotism, cronyism, and even consists of a narrowing of the tax base. To briefly consider the state of the market that prevailed under prohibition: there would have been no difference if the state had decided to grant an unrestricted monopoly to a single or a few mafia organizations because that is what the market evolved into during the period of time from 1919 to 1933. The repeal of prohibition transferred ownership and regulation of the distribution networks to the state. Today, many states have some semblance of a free market in place of the antiquated system that existed immediately after prohibition. Some of the most heavily regulated states are taking initiatives to promote greater competition and disband the state operated alcoholic beverage distribution networks. At least five control states--Mississippi, Pennsylvania, Vermont, Virginia and Washington-- introduced legislation in 2010 that addressed privatization of alcohol sales or called for more study of the issue. Most of the bills failed; however, an effort is underway in Washington to place two initiatives on the ballot. (2) As mentioned earlier, several states that sanction and conduct beverage sales to local retailers are beginning to reconsider their standard operating procedure due to financial and logistical burdens but this has been actively opposed by organizations such as Mothers against Drunk Driving and other groups which engage in many positive activities that strengthen society but also help maintain certain paradigms in the world of policy-making which have been difficult to overcome. Another way that some states maintain protect the financial interests of political patrons is by creating a quasi-monopoly by granting distribution privileges to certain wholesalers and distributors. Granting these privileges to certain organizations which usually organize and collectively call themselves euphemistic names such as Spirit and Wine Distributors of Pennsylvania or Association of Beer Wholesalers renders the consumer demand curve less elastic, for the consumer is deprived of substitute products from other potential competitors. (3) In response to the aforementioned scenario, critics of this viewpoint often assert that consumers make their own demand curve inelastic but this assertion can be easily dismissed by taking into consideration that consumers are unable to do so because the free market does not truly exist in a scenario where trade is restricted within certain firms. If it has not been made clear as of yet, the author of this paper has been convinced by the mountain of historical and statistical evidence that supports a free market distribution system of products, including, but not limited to alcoholic beverages. Forcing retailers to purchase products from governmental entities, restricting purchasing behavior within certain geographic boundaries, and illegalizing inter-state transport of certain legal products are all activities that most states engage in and considerably hamper the tax-revenue potential of the states as well as the profit motives of many of its citizens. Clearly a major focus of this paper revolves around alcohol distribution and regulation but this is not intended to ignore the fact that along with their distribution networks, certain tobacco manufacturers maintain a near oligopoly on the American market share- when Philip Morris, R.J. Reynolds, Lorillard, and Brown & Williamson were forced to sign a multi-billion dollar Master Settlement Agreement in November 1998, outside analysts predicted a decline in sales, stock prices, and profits- in fact the opposite has happened. (4) The activities of these corporations are considered to be more acceptable because the MSA involved sacrifices on the part of the corporations that grew their market share because of it and it did not restrict the entry of new competitors into the marketplace- it only made it much more inconvenient for them to prevail in a heavily saturated field because of the payouts they were forced to make to become part of a level playing field. A great example of the arguments presented in this paper regarding alcohol distribution is the recent public debate in Michigan regarding the same issue. (5) In 1997, then-Gov. John Engler and the Legislature debated and passed an attempted privatization of the previous state-owned system. As a result of this legislation, several hundred state positions were eliminated, along with the growing pension liabilities they accrued every year. The replacement did not turn out to be a panacea and, in fact, greatly limited competition in the form of a price-controlled oligopoly in which a handful of private distribution companies were granted exclusive licenses to distribute liquor to the retail and hospitality industries. Obviously, the main beneficiaries of this plan were not the citizens it claimed to help by promoting greater competition or the retailers who were the main source of alcohol to independent consumers within the state, but the cartel of politically connected interests who promptly became a part of the alcohol distribution business. Predictably, the lack of competition generated higher prices and lower volumes than would otherwise be the case. In late 2010, recognizing the problems inherent in this policy, Gov. Jennifer Granholm proposed selling distribution privileges to a single entity. Clearly, the state of the Michigan alcohol distribution is a far cry from the state of the marketplace in 1920 or even years after prohibition, but the fact remains that there is nothing remotely similar to a free market in the alcoholic beverage distribution network in the United States of America. It is easy for state, local, and even national legislators to attempt to get their governmental unit out of the current situation by legislating remedies and creating new agencies and programs to ensure a fair marketplace and the scope of this paper is too narrow to determine specific policy prescriptions but it is clear that their past attempts have only been successful at making the problem worse.
Works Cited 1. Hall, Wayne. "What are the policy lessons of National Alcohol Prohibition in the United States, 1920-1933?" Addiction 105.7 (2010): 1164+. Academic OneFile. Web. 4 May. 2011. 2. "Alcohol for sale." State Legislatures 36.8 (2010): 8. Academic OneFile. Web. 4 May. 2011. 3. Rot hbar d, Mur r a y. Man, Economy, and St at e. 3r d. Aubur n, Al a ba ma: Mi s e s I nst it ut e, 1962. 214- 19. eBook. 4. Le vy, Rober t A. "The To bac co Car t e l I s Al i ve a nd We l l . " I ndi v i dual Li be rt y, Fr ee Marke t s, and Peac e. Cat o I nst it ut e, 07/ 14/ 2001. We b. 4 Ma y 2011. 5. Mc hugh, J ack. "Thi s Ti me I t s Li quor Di st r i but io n. " Mac ki na c Ce nt er for Publ i c Po l i c y, 8/ 24/ 2010. We b. 4 Ma y 2011.