How the US liquor industry is kept in check

Why is Britain in the midst of an alcoholism crisis whilst in the States teenage drinking is at an historic low? That’s the question Tim Heffernan begins this lengthy but fascinating exposition of the changing US and UK booze industries.

The reasons are many, but one stands out above all: the market in Great Britain is rigged to foster excessive alcohol consumption in ways it is not in the United States—at least not yet.

Monopolistic enterprises control the flow of drink in England at every step—starting with the breweries and distilleries where it’s produced and down the channels through which it reaches consumers in pubs and supermarkets. These vertically integrated monopolies are very “efficient” in the economist’s sense, in that they do a very good job of minimizing the price and thereby maximizing the consumption of alcohol.

The US market is much more inefficient, and has been (purposively so) since the end of Prohibition, with a combination of constitutionally-enshrined state regulation of liquor sales (limiting the potential for countrywide economies of scale) and a federally-enforced three tier system:

The idea is that brewers and distillers, the first tier, have to distribute their product through independent wholesalers, the second tier. And wholesalers, in turn, have to sell only to retailers, the third tier, and not directly to the public. By deliberately hindering economies of scale and protecting middlemen in the booze business, America’s system of regulation was designed to be willfully inefficient, thereby making the cost of producing, distributing, and retailing alcohol higher than it would otherwise be and checking the political power of the industry.

Things are changing in the US as two companies – Anheuser-Busch InBev and MillerCoors – work with big retailers to undermine intentional inefficiencies, but this great article nevertheless illustrates how far policy makers in the UK have to go.


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