Alcohol, Antitrust, and the 21st Amendment: An Empirical Examination of Post and Hold Laws

International Review of Law and Economics 32 (2012) 379– 392

George Mason Law & Economics Research Paper No. 10-32

15 Pages Posted: 19 Jul 2010 Last revised: 11 Nov 2012

James C. Cooper

George Mason University - Antonin Scalia Law School, Faculty

Joshua D. Wright

George Mason University - Antonin Scalia Law School, Faculty

Date Written: November 9, 2010

Abstract

The Twenty-first Amendment repealed prohibition, but granted the states broad power to regulate the distribution and sale of alcohol to consumers within their borders. Pursuant to this authority, states have established a complex web of regulations that limit the ability of beer, wine, and liquor producers to control the distribution of their product. From a consumer welfare perspective, one of the most potentially harmful state alcohol distribution regulations are “post and hold” laws (“PH laws”). PH laws require that alcohol distributors share future prices with rivals by “posting” them in advance, and then “hold” these prices for a specified period of time. Economic theory would suggest that PH laws reduce unilateral incentives for distributors to reduce prices and may facilitate tacit or explicit collusion, both to the detriment of consumers. Consistent with economic theory, we show that the PH laws reduce consumption by 2-8 percent. We also test whether PH laws provide offsetting benefits in the form of reducing a range of social harms associated with alcohol consumption. We find no evidence of such offsetting benefits. Taken together these results suggest that PH laws are socially harmful and result only in a wealth transfer from marginal alcohol consumers, who are unlikely to exert externalities on society, to wholesalers. These results also suggest a socially beneficial role for antitrust challenges to PH laws and similar anticompetitive state regulation. If states wish to reduce the social ills associated with drinking, our results suggest that increasing taxes and directly targeting social harms are superior policy instruments to PH laws.

Keywords: ABC, Albaek, alcoholism, cartel, Costco, collusion, drunk driving, exclusive dealing arrangements, federalism, franchise, most-favored customer, New York, preemption, price-fixing, Sherman Act, state action, TFWS Inc. v. Schaefer, teen drinking, temperance, three-tier system, 21st amendment

JEL Classification: D43, I18, K21, L41, L66

Suggested Citation

Cooper, James C. and Wright, Joshua D., Alcohol, Antitrust, and the 21st Amendment: An Empirical Examination of Post and Hold Laws (November 9, 2010). International Review of Law and Economics 32 (2012) 379– 392; George Mason Law & Economics Research Paper No. 10-32. Available at SSRN: https://ssrn.com/abstract=1641415 or http://dx.doi.org/10.2139/ssrn.1641415

James C. Cooper

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-9582 (Phone)

Joshua D. Wright (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

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