Open Letter to the Liquor Control Commission

Abandon rules allowing industry price collusion

Dear Commissioners:

By now you may know that the Mackinac Center for Public Policy has filed a lawsuit against the Michigan Liquor Control Commission over illegal costs associated with a Freedom of Information Act request I submitted. The suit arose out of my investigations into your so-called “post and hold ” rules for distributors and wholesalers of alcoholic beverages. Previous empirical research has shown these rules may artificially raise prices paid by consumers between 6.4 to 30 percent, depending on the product.

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You will recall that in testimony before the commission last June I recommended these rules be repealed because they hurt consumers and only benefit a handful of beer and wine wholesalers. This amounts to government-enabled industry price collusion.

It is distressing that the Commission has chosen to continue enforcing these anti-consumer rules. The reasons given in your explanation for not repealing the rule strongly suggest that the Commission is excessively interested in what benefits members of this industry rather than the public.

For example, the minutes of your Sept. 9, 2014 meeting state:

“The only voice of opposition to these rules at this time is the Mackinac Center for Public Policy. The Commission has not heard from retailers that these rules are detrimentally impacting their business.”

What difference does it make that a free-market think tank is the only opposition? How many retail beer-and-wine store owners, much less consumers, know or even imagine that a state agency enforces a form of anticompetitive price collusion? As you know, the rule (which was never enacted by the Legislature) does so by mandating that distributors and wholesalers “post” their prices for anyone to see, including competitors, and then prohibits them from changing these prices for up to 180 days.

Also, your focus on a particular business interest in that paragraph suggests that a point of clarification is necessary: The Mackinac Center’s concern is not about retailers and their businesses, but rather consumers and their wallets. Nothing we have written on this issue references “retailers.”

You also wrote the following:

“Both the Michigan Beer and Wine Wholesalers and the Michigan Licensed Beverage Association are in opposition to the rescission of these rules.”

This is unsurprising. Monopolists and price-fixing cartels are always opposed to repeal of their cozy arrangements.

This also raises the question, why is hearing from a disinterested “voice of opposition” cited as grounds for refusing to repeal an anti-consumer practice, while support from the special interest that profits from it is held up as justification? Of course those industry trade associations are “in opposition to the rescission of these rules” — they’re the primary beneficiaries! It’s consumers who suffer.

Continuing, the minutes from your Sept. 9, 2014, meeting includes the following:

“(T)he Chairman advised that the Commission is conducting a comprehensive review of all the administrative rules and will be reviewing both the beer and wine rule sets to incorporate the recent statutory changes.”

Unfortunately, the commission’s pro-industry history suggests nothing is likely to change. For example, Gov. Rick Snyder appointed a special advisory committee to review onerous alcohol rules and regulations, and yet “post and hold” was never addressed. Just in case it might have slipped the committee members’ minds, we sent them a letter on Oct. 24, 2011, that included the following bullet point:

  • Eliminate the “post and hold” rule from the Administrative Code.
    This is a measure that protects beer and wine manufacturers and wholesalers. The rule is tantamount to state-mandated price collusion… (more)

Nevertheless, apparently reviewing these rules wasn’t deemed convenient at this time. Still, you may want to reconsider, given that federal courts have held that similar schemes in other states violate the Sherman Antitrust Act. [See cases from Oregon (Miller v Hedlund, 813 F.2d 1344 (CA9 1987)), Maryland (TFWS v Schaefer, 242 F3d 198 (CA4 2001)), and Washington (Costco v Maleng, 522 F3d 874 (CA9 2008)].  

Finally, I understand that communications with persons outside the liquor industry may not be the Commission’s strong suit. This may explain why you are being sued under a law that requires government agencies to make public records (including electronic ones) available to — well, the public.

The Freedom of Information Act lawsuit was filed after I was informed that the Commission would charge $1,550 to “copy” 6,000 pages of records requested under the state open records law.

I know Commission traditions date back to the post-Prohibition era of the 1930s, but no page “copies” were ever requested. Instead, the request was for someone to stick a thumb drive in a computer and copy a spreadsheet from your database.

Thank you for your time and attention in this matter.

Sincerely,

 

Michael LaFaive

Director

Morey Fiscal Policy Initiative


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