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September 21, 2013 3:46 PM A Case Study

Do D.C. laws on wine, beer, and liquor lead to lower prices, or do they discourage competition?

By Max Ehrenfreund

It’s Saturday afternoon. If you live in Washington and you’re trying to make a plan with your friends for tonight, you might read this piece by Jessica Sidman on how the city’s unusual liquor laws have encouraged specialty bars offering all kinds of exotic spirits, such as absinthe, rakia, and mezcal. The District of Columbia permits restaurateurs and retailers to buy their liquor directly from the supplier. In other jurisdictions, a licensed distributor must serve as middleman. Matthew Yglesias argues that this three-tier system, as it is called, “greatly reduces the range of products that are available, and can raise prices by limiting competition and inserting extra layers of profit-taking.”

I’m not convinced. The three-tier system wasn’t designed to lower prices, to be sure, but it does help protect competition by preventing vertical integration of suppliers, distributors, and retailers. As Tim Heffernan explained in this magazine, vertical integration has long been a problem in the British alcohol industry, and it was an issue here, too, before Prohibition. Even if it does lead to higher prices, the system also ensures that large suppliers can’t force distributors to exclude smaller suppliers from the market.

Here in Washington, distributors seem like they are in a precarious position because their largest suppliers can threaten to deal directly with distributors. Suppliers could use their position in the market to force distributors not to carry their smaller competitors’ products. One the one hand, this system works very well for true aficionados, like Greg Jasgur of Pizza Paradiso:

Jasgur has built a name for his beer program by carrying out-of-market beers that you can’t find anywhere else in the area. Upholding the pizzeria’s boozy cachet sometimes involves revving up the rental truck and racking up miles on trips to out-of-town breweries, including Three Floyds [in Indiana], where he loads up with cases of the aforementioned imperial stout and any of the producer’s other nobly-titled brews, such as the Alpha King Pale Ale.

On the other hand, a system in which competition depends on individual restaurateurs taking occasional road trips across several states is obviously not feasible on a metropolitan scale. I doubt that the volume of alcohol flowing through the district’s specialty establishments is economically significant, and I tend to think that the three-tier system is the best way to guarantee small suppliers access to a broader market.

In my experience, it is difficult to find craft beer in grocery stores and liquor stores in the nation’s capital. But that’s just one man’s opinion, and there are probably important aspects of the issue that Yglesias and I are ignoring. I would certainly appreciate hearing from anyone who has direct experience with our laws on distributing liquor.

I’ll be online again tomorrow morning. In the meantime, please drink responsibly.

Max Ehrenfreund is a former Monthly intern and a reporter at The Washington Post. Find him on Twitter: @MaxEhrenfreund

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