November 1, 2004
Consumers can order almost anything online today, from computers to designer handbags; everything that is except a case of wine from an out-of-state vintner. Direct-shipping bans in 30 states currently prohibit shipping wine directly from an out-of-state winery to the consumer.
That soon may change, says Douglas Glen Whitman, Research Fellow at the Independent Institute and author of a new study, Strange Brew: Alcohol and Government Monopoly. The U.S. Supreme Court has agreed to hear two legal challenges to direct-shipping bans, which may force states to treat wine just like the thousands of other products shipped to consumers across state lines every day, says Whitman. The cases pit the 21st Amendment, which ended Prohibition, but allowed states broad authority to regulate and even ban alcohol sales, against consumers and independent wineries.
The 21st Amendment to the U.S. Constitution ended Prohibition, but set the stage for state and federal regulations that protect wholesalers from competition, says Whitman, an assistant professor of economics at California State University, Northridge. This boils down to special interests: unnecessary middlemen get a legally guaranteed role in the market, then pass their costs and markups on to wine drinkers, he points out. In Strange Brew, he examines the laws regulating the alcoholic beverage industry-the Franchise Termination Laws-which give wholesalers monopoly-like powers to raise prices. These regulations are a form of corporate welfare, justified under the guise of concerns about taxation and protecting minors from buying alcohol, says Whitman.
In Strange Brew, Whitman offers a thoughtful and succinct analysis of the economics and politics underlying these counterproductive laws. He demonstrates how these monopoly protection laws regulating the alcoholic beverage industry, are used by powerful special interests to restrict markets, deter competition, and set higher prices in the industry.
The states have in essence given wholesalers of alcohol beverages small monopolies . . . and they seem to have no possible effect except to make the market work less freely. Strange Brew makes a strong case for their abolition. Anyone interested in markets will find this book fascinating.
Gordon Tullock, Professor of Law and Economics, George Mason University
Strange Brew: Alcohol and Government Monopoly
By Douglas Glen Whitman
Published by The Independent Institute
54 Pages, $12.95 ISBN: 0-945999-88-7
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