Search costs, collusion, and moral banter

Think of the Children! (But only on Sundays, say area liquor stores)

Connecticut is considering a law lifting the ban on Sunday liquor sales. The current prohibition is a throwback to the religious blue laws. Of course, like most legislation that comes under the banner of morality, someone is sneering and profiteering. Opposed to the legislation is the Connecticut association of liquor stores. Head cretin (err, President) Alan Wilensky justifies his opposition:

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We retailers are smart business people. If we thought that an additional day of operation would be profitable and in the public interest, we would have proposed the bill ourselves years ago.

Smart business people compete effectively. Very smart morally bankrupt business people collude effectively. Coordinated store hours raise search costs for consumers, allowing retailers to charge higher prices. Such coordinated closure is illegal; see, for example, the case of the FTC vs. Detroit Auto Dealers). But if we can get legislation to do it for us under some cynical moral banter, all the better:

We do not feel that this sensitive product should be more available ... at a time when there is great concern regarding sales to minors.

Of course, protecting the children is the liquor cabal's favorite non sequitur. I'm sure that Mr. Wilensky's own liquor store is diligently screening underage consumers the six days it is open. Presumably, adequate safeguards don't expire every Saturday evening, only to be reborn Monday mornings.

UPDATE: I promoted Mr. Alan Wilensky from "cynic" to "cretin" in proportion to his hyperbole. On his association's web site, he claims that Sunday sales are "blood money". Sales on Saturday, from which Mr. Wilensky handsomely profits, are presumably more holy.

A three-tier system for Amazon

What would cost Tennessee more revenue: half of all wine purchases being smuggled in from out of the state, or people eschewing the local Borders in favor of Amazon.com?

The most common defense of the three tier system forwarded by the liquor distributor cabal is that it ensures the collection and distribution of sales and excise taxes, without which Tennessee roads may no longer be the State's pride, and Tennessee schools might fall out of the top 49 in graduation rates.

Since interstate shipments would not be directly taxable, it is a valid point. But how valid, in dollar terms? Consider a comparison.

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In 2004, Amazon.com had sales of nearly seven billion dollars. While they do not break this out by state, the Bureau of Economic Analysis reports that in 2004, Tennessee accounted for 1.8% of National Income. If book demand is roughly in proportion (avoiding the easy jabs linking demand for books and graduation rates), $125 million worth of Amazon merchandise was shipped into Tennessee. Of course, while the law-abiding citizen would declare this purchase and remit taxes to the State, lets assume that this does not happen often. This suggests about eleven million dollars in taxes foregone due to a single online retailer.

But what about wine? Collections from the wine excise tax amounted to less than eight million dollars in fiscal 2004 (TN Dept. of Revenue). Figures from industry lobbyists (pdf) put the total collections at about seventeen million, including licensing fees, fines, and confiscation income.

In short, even if we take the higher industry figure, and assume that 70% of all wine sales will be lost to out-of-state sales (a ridiculous idea when shipping costs are factored in), then the state still loses more from a single online retailer than the entire wine industry.

Following up on a previous post, and slightly paraphrasing Lipman's dishonest defense of the monopolization of alcohol, we have (original in italics):

Requiring Amazon.com to sell through our local Borders Books promotes a safe marketplace and environment for citizens by limiting the authorized channels through which books enter our state. The system also helps ensure that minors are not given access to immoral, objectionable smut and that the state can collect taxes on alcohol sales. It also allows for a level playing field for retailers of all sizes, increasing competition and supporting small business. By having exclusive rights to distribution, Borders has a vested interest in helping build brands over a long period of time, affording better growth for the brand within the market.

Senators, please pass the Book Distribution Act now to stop the madness. Think of the children.

Competition policy after several martinis

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...

A premature celebration

The press has been quite jubilant about yesterday's Supreme Court ruling on direct shipment of wine ("Let those wine sales flow" claims USA Today) but we shouldn't pop the cork on that last bottle of bubbly since it may not get easier to acquire more.

All that the Court requires in its decision is that states adopt comparable winery-to-consumer shipping laws for out-of-state wineries as they do for in-state wineries. I applaud the decision on legal grounds, asserting that fair interstate commerce applies to alcohol sales, but expect it will make wine even harder to acquire.

We can classify states into three catgeories:

1. States that allow shipment from all wineries
2. States that allow shipment only from in-state wineries
3. States that allow no shipments at all (like Tennessee)

The case has no impact on the first and third category, since the decision requires only that policies for in-state and out-of-state wineries correspond. Additionally, it seems to apply to wineries only, not retailers, thus having no impact on Internet sales from cheaper retailers out of state.

But certainly there is good news for consumers in the few states with discriminatory policies? Perhaps not. What will states in the second category do when forced to set identical policies for out of state wineries. They either allow out of state wineries to ship or prohibit in-state wineries from doing so. Since the latter option is preferred by the well-funded distributor lobby, I'm guessing this is more likely

So, the Supreme Court decision is a victory for the principle of competition, but likely to reduce than create more competition, in practice.

Opening your garage door now a felony

Not only does the Digital Millennium Copyright Act turn recording industry execs into cops and jurists, and empower them to place in jail those who develop reading technologies for the blind, and to stifle scientific debate through threats, but now declares competition in the garage door opener industry as unlawful circumvention (pdf link).

The judge found that making a universal garage door opener violates the DMCA.

The Skylink transmitter is designed to send a signal that mimics the Chamberlain resynchronization procedure and thereby circumvents Chamberlain's protective measure.

No word yet on when raids of homes using universal television remotes will begin...