A brief two-question quiz on industrial organization:
QUESTION 1: A manufacturer sells his goods to a retailer. A law is passed that forbids the manufacturer from selling to the retailer. Instead, the manufacturer is required to sell to a middleman, who may then sell to a retailer. This helps:
- A. The middleman
- B. The retailer
- C. The manufacturer
- D. ALL OF THE ABOVE! and Children. And small businesses.
QUESTION 2: A new law would forbid manufacturers from talking to more than one middleman, so that each middleman is, by law, given the exclusive ability to connect a specific manufacturer to the retailers. Who would benefit from this law?
- A. The middleman
- B. The retailer
- C. The manufacturer
- D. ALL OF THE ABOVE!
If you answered D for both questions, you’re right, according to the oldest member of the liquor distributors’ cabal:
The three-tier system promotes a safe marketplace and environment for citizens by limiting the authorized channels through which alcohol enters our state … It also allows for a level playing field for retailers of all sizes, increasing competition and supporting small business.
Tennessee is known as a franchise state, meaning that wholesalers have exclusive relationships with suppliers’ brands. By having exclusive rights to distribution, wholesalers have a vested interest in helping build brands over a long period of time, affording better growth for the brand within the market.
The second paragraph is beguiling, containing a gram of truth. Downstream monopolization does imply greater brand-specific investment, but only because it leads to a greater capture of surplus. It is certainly not a net positive for anyone but the monopolist. The first paragraph is so deceitful as to be laughable, if not for venal state politicians who regularly parrot it.
UPDATE (11 October 2007): Fun with Google.
Presumably because of the above link, a search for the phrase liquor distributors’ cabal now yields as the first result Lipman’s somewhat questionable justification of the three-tier system. I wonder if unscrupulous cretins can catch on…
[...] most common defense of the three tier system forwarded by the liquor distributor cabal is that it ensures the collection and distribution of [...]
[...] include 9.25% sales tax and 15% liquor tax, and retail wine prices in Nashville are quite high (curious why?). Therefore, while a ratio of 200 implies twice the national median prices, it will be a [...]