(Editor’s note: A version of this commentary appeared in
the Detroit Free Press on July 31, 2011.)
The state of
Michigan maintains a so-called “three-tier” liquor distribution system that erects
legal walls between suppliers, state-level wholesaler and retailers. This
arcane system drives up the cost to consumers by limiting competition without
necessarily making any contribution to public safety.
The system was created after Prohibition ended in
1933, ostensibly to curb potential distribution and sales abuses. Today it’s
merely a tool used by a handful of politically powerful beneficiaries to tap
consumer pocketbooks. Specifically, the system appears to have been captured by
the private, for-profit second tier — beer and wine wholesalers — who enjoy
monopoly profits and limited competition. For reasons of economic efficiency
and just plain fairness, the Legislature should dismantle this dysfunctional
These laws are bad for consumers and taxpayers, but good for the handful of wholesalers who spend big bucks on lobbying and campaign contributions to protect their privileges.
A logical first
step would be to end the bizarre system in which the state is the wholesaler
for all distilled liquor, and tacks on a 65 percent markup before applying an
array of other taxes. Some recent “field research” by this author discovered
many identical liquor products selling at a Meijer in Angola, Ind., — where the
state does not act as wholesaler nor impose minimum shelf prices — at costs of
more than 20 percent lower compared to a Meijer in Coldwater, Mich.
protection of regional beer and wine distribution monopolies should also be
dismantled. Unlike distilled spirits, state government is not the wholesaler
for beer and wine, but it is complicit in artificially driving up prices by
legally restricting wholesaling and distribution to a handful of family owned
businesses that have become rich by exploiting territorial monopolies granted
by the state.
According to a
House Fiscal Agency analysis of the 1976 law that granted these privileged
beneficiaries their beer monopolies, the rationale was that “… retailers may
ask for unfair discounts for [sic] competing wholesalers in order to get the
best deal possible.” The report failed to note how competition was unfair to
In 1986, the
Legislature granted similar distribution monopolies for wine, with some minor
exceptions. Gongwer News Service at the time reported this as “a concession
granted to the Michigan Beer and Wine Wholesalers in negotiations with
legislators,” apparently to obtain support for a wine cooler bottle deposit
protecting beer and wine monopolists from competition is commonly known as
“post and hold.” In 1979, the Legislature first adopted such a measure for
beer. This law requires wholesalers to announce — or post — any price changes
in advance and hold those prices for a length of time, in the case of beer for
180 days. In effect, the law makes it easier for wholesalers to legally collude
to the detriment of consumers. A similar stipulation for wine also exists.
anti-consumer laws should be repealed. Scholars James C. Cooper of the Federal
Trade Commission and Joshua D. Wright of George Mason University co-authored a
paper in 2010 that statistically demonstrated what any reasonable layperson
might predict: that such “post and hold” laws result in dramatically higher prices.
Specifically, prices for a representative six-pack of beer were estimated to
increase 12 percent to 30 percent; a bottle of wine from 6.4 percent to 18
percent and distilled spirits from 9 percent to 32 percent.
Despite the fact
that this law hikes prices, the authors found “no measurable effect” on drunk
driving or underage drinking. If a state wants to suppress consumption by
increasing the price, it can do so by imposing a simple excise tax — something
Michigan already does.
These laws are
bad for consumers and taxpayers, but good for the handful of wholesalers who
spend big bucks on lobbying and campaign contributions to protect their
privileges. Busting this cozy relationship between lawmakers and monopolists is
long overdue. The next time your family shops for a nice merlot to go with
dinner, or you purchase a “sixer” for the big game, make a note to ask your own
state elected officials how much they received from beer and wine monopolists
in the last election campaign.
Michael D. LaFaive is
director of the Morey Fiscal Policy Initiative at the Mackinac Center for
Public Policy, a research and educational institute headquartered in Midland,
Mich. Permission to reprint in
whole or in part is hereby granted, provided that the author and the Center are