Time to cut Michigan’s wholesale alcohol monopolies

• This commentary was written by the director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, MI.

By Michael D. LaFaive

State policymakers will reform Michigan’s antiquated alcohol regulations this year if Gov. Rick Snyder adopts ideas submitted by a liquor reform advisory panel he created months ago.

Change is certainly needed; in particular, the state effectively grants monopolies to a few lucky private, for-profit beer and wine wholesalers. These regulatory privileges should be struck from state law in the name of fairness and competition.

A basic principle of economic theory is that competition — or the threat of competition — is good for consumers. Monopolies facing no such threat are generally bad.
Recent Mackinac Center for Public Policy research suggests that nationwide, such state controls raise liquor prices by between 3 and 6.3%.

In the strictest sense, a business monopoly is a single seller of goods or services. Most businesses find it difficult to maintain monopoly status in a system of rugged competition. As Nobel Memorial Prize-winning economist George Stigler has written, "Most important enduring monopolies … rest upon government policies." Cable franchises and utilities come to mind.

Beer and wine wholesalers effectively possess monopolies because state law mandates that suppliers of beer and wine grant exclusive sales territories to wholesalers for the suppliers’ products. All retailers, such as liquor stores and bars, must buy their beer and wine from their area wholesaler. The result is a territorial monopoly.

You don’t need a Ph.D in economics to understand what happens when firms obtain monopoly status: Prices rise and services suffer.

Consider just one example. In 2002, Northwest Airlines was busted for trucking beer and wine to Detroit Metro Airport instead of acquiring it through a Michigan wholesaler. According to the Detroit Free Press, Northwest reported it was saving up to $3 million per year by shipping the alcohol to the Great Lakes state, rather than buying it locally.

Now multiply this experience by the thousands of businesses licensed to sell at retail — and by their hundreds of thousands of customers — and you’ll understand the magnitude of what is effectively a state tax that benefits territorial beer-and-wine wholesale monopolies.

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