State 'Post and Hold' Rules Economically Unsound

Michigan Capitol Confidential ^ | 8/20/2016 | Michael LaFaive

[MichCapCon]

The Mackinac Center’s mission is premised on the notion that free markets and free people make for a more prosperous and flourishing society. So it’s no surprise that we find Michigan’s alcohol control regime problematic, because it is designed to unjustly enrich a few beer and wine wholesalers at the expense of consumers everywhere. Indeed, parts of the state liquor code read as if it were written specifically for the benefit of wholesaler business interests.

Along with laws laid down by the Legislature, rules from the Michigan Liquor Control Commission protect insiders, resulting in crony capitalism at its worst. This protectionist regime may be legal, but it ought to end for the sake of sound economic policy and fairness.

To cite just one area of wholesaler protectionism, two “post and hold” mandates let wholesalers engage in tacit price collusion. These rules, defended by the wholesalers, compel manufacturers and wholesalers to submit price schedules for their products to the Liquor Control Commission in Lansing. They must then hold those prices for a certain amount of time that varies by the product. This arrangement allows all wholesalers to see what the competition is charging. That’s bad enough, but it also inhibits price competition by limiting the speed with which prices can change.

These government arrangements have real world economic consequences for consumers. One oft-cited study, “State Regulation of Alcohol Distribution: The Effect of Post & Hold Laws on Consumption and Social Harms,” estimates that such post and hold rules and laws nationwide may artificially raise the price of beer and wine anywhere from 6.4 to 30 percent.

The Mackinac Center has attempted to persuade the state’s Office of Regulatory Reinvention and Liquor Control Commission to at least partially repeal these dubious and harmful rules. The government’s response, unfortunately, has either been silence or redirection.

With the state unwilling or unable to repeal such blatantly anti-consumer rules, perhaps it is time for a public interest lawsuit. There is a legal case to be made that post and hold rules violate antitrust laws. If lawmakers or appointees will not repeal these rules, perhaps they can be compelled to do so.

Antitrust laws, such as the Sherman Antitrust Act, seek to prevent collusion and price fixing that hurts consumers. Ever since the end of Prohibition in 1933, states have been largely exempt from the federal antitrust laws when they regulate alcohol. This began to change in 1980, however, when the Supreme Court declared that state alcohol regulation was subject to the Sherman Antitrust Act.

The first antitrust challenge to a post and hold regime after that ruling arose in New York. It failed. Since that time, however, the trend has swung in favor of competition. Post and hold laws have been struck down one after another in Oregon, Maryland and most recently in Washington state.

The direction of the legal winds seems to be blowing in favor of competition and against price collusion in the alcohol industry. Michigan should follow this trend for the good of consumers.