Complexity, Efficiency, and Fairness in Multiproduct Liquor Pricing

60 Pages Posted: 22 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

Jeff Thurk

University of Notre Dame

Multiple version iconThere are 2 versions of this paper

Date Written: February 14, 2014

Abstract

The Pennsylvania Liquor Control Board administers the purchase and sale of wine and spirits and is mandated to charge a uniform 30% markup on all products. We use an estimated discrete choice model of demand for spirits, together with information on wholesale prices, to assess the implications of this policy. We find that failure to account for the correlation between demographics and consumption patterns leads to lower prices than those charged by a profit-maximizing, multi-product monopolist. Using product-specific markups leads to higher prices on average, less quantity consumed, an 11% increase in total profits, and greater welfare. The current one-size-fits-all pricing rule ignores variations in demand elasticities resulting in the implicit taxation of high-income and educated households by raising the prices of spirits they prefer (vodka and whiskey) while lowering the price of products favored by low-income and minority households (gin and rum).

Suggested Citation

Miravete, Eugenio J. and Seim, Katja and Thurk, Jeff, 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=2553195

Eugenio J. Miravete (Contact Author)

University of Texas at Austin ( email )

Department of Economics
1 University Station C3100
Austin, TX 78712-0301
United States
512-232-1718 (Phone)
512-471-3510 (Fax)

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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Katja Seim

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Jeff Thurk

University of Notre Dame ( email )

3047 Jenkins-Nanovic Hall
Notre Dame, IN New South Wales 46556
United States
5746313083 (Phone)

HOME PAGE: http://https://www3.nd.edu/~jthurk/

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