Complexity, Efficiency, and Fairness in Multiproduct Liquor Pricing

60 Pages Posted: 21 Jan 2015

See all articles by Eugenio J. Miravete

Eugenio J. Miravete

University of Texas at Austin; Centre for Economic Policy Research (CEPR)

Katja Seim

Yale School of Management

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

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Date Written: February 14, 2014

Abstract

The Pennsylvania Liquor Control Board (PLCB) controls the purchase and sale of alcoholic beverages across the state and is legally mandated to charge a uniform 30% mark-up on all products. This paper investigates the welfare implications of this uniform markup. We show that consumption patterns vary across the state and these variations are correlated with consumer demographics. Using detailed data on prices, quantities, and demographics across 499 local markets, we estimate a multiproduct discrete choice model of demand. We use the demand estimates and data on wholesale prices to assess the consumer welfare implications of the current uniform mark-up. We find that the current system transfers rents from high income and educated households to minorities by underpricing those liquor varieties that this latter group favors. We further show the returns (to welfare and profits) of more sophisticated pricing strategies are small.

Suggested Citation

Miravete, Eugenio J. and Seim, Katja and Waldfogel, Joel, Complexity, Efficiency, and Fairness in Multiproduct Liquor Pricing (February 14, 2014). The Wharton School Research Paper No. 74, Available at SSRN: https://ssrn.com/abstract=2553143

Eugenio J. Miravete (Contact Author)

University of Texas at Austin ( email )

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HOME PAGE: http://www.eco.utexas.edu/facstaff/Miravete

Centre for Economic Policy Research (CEPR)

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Katja Seim

Yale School of Management ( email )

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Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management ( email )

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National Bureau of Economic Research (NBER)

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University of Minnesota - Twin Cities - Department of Economics ( email )

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