Treasury’s hunt for monopolies in the booze business misses the point
High prices got you down? Inflation threatening your political career? If you work in the Biden administration, your boss needs you to find a solution for rising prices, no matter how detached from economic reality it sounds.
How else can we explain the Treasury Department report that blames consolidation in the liquor industry for declining competition and rising prices, even when it admits the booze market has never been more competitive?
…significant growth in the number of small and “craft” producers of beer, wine, and spirits. There are now over 6,400 operating breweries in the UnitedStates, up from a low of 89 in the late 1970s, and more than 6,600 operating wineries. There also more than 1,900 operating distilleries. These businesses are dispersed throughout the country, and they have helped build a strong global reputation for quality and craftsmanship. In addition, over the last several decades the United States has become an innovator in bringing new types of beers, wine, and spirits to the world.
Setting that brain teaser aside, there are ways to make the liquor market more efficient, and less sclerotic. Measures that would require governments to ditch their anti-competitive laws on distribution:
…nearly every state in America has a three-tier system for alcohol, requiring alcohol producers, wholesalers, and retailers to all be legally separate entities. Alcohol producers are largely barred from selling their products directly to retailers or consumers, forcing them to go through wholesalers.
These state laws insulate alcohol wholesalers from competition by giving them a government-mandated middleman role in the supply chain. Many state governments make the problem worse with stringent franchise laws and exclusive territory rules that grant specific wholesalers de facto monopoly sales rights over certain brands in many regions. Unlike alcohol producers, wholesalers are rapidly consolidating. As a result, small craft alcohol makers often find themselves locked out of many markets.
But the Treasury fails to identify the right fix for this problem. Small alcohol producers would benefit most not from more federal scrutiny of brewery mergers but from state-level reforms that overhaul the three-tier system. Most notably: If more states allowed brewers and distillers to ship their products directly to consumers, craft beverage makers could circumvent potentially collusive wholesalers that prioritize macro beers over micros.
Less prohibitionist meddling, and more market freedom, would bring down costs, increase choices and who knows? Maybe it would take tiny bite out of inflation, too.