Alcohol, antitrust, and the 21st Amendment: An empirical examination of post and hold laws

James C. Cooper and Joshua D. Wright

International Review of Law and Economics, 2012, vol. 32, issue 4, 379-392

Abstract: The 21st Amendment repealed prohibition, but granted the states broad power to regulate the distribution and sale of alcohol to consumers within their borders.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%. We also test whether, by reducing consumption, PH laws provide offsetting societal benefits in the form of reducing drunk driving accidents and underage drinking. We find no measurable relationship between PH laws and these social harms. These results 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 also suggest that directly targeting social harms with zero tolerance laws and lower drunk driving thresholds are superior policy instruments to PH laws.

Keywords: Alcohol; Regulation; Post and hold; 21st amendment; Prohibition; Temperance; Preemption; Wine; Beer; Liquor; Antitrust; Collusion; Price-fixing; Sherman Act; Three-tier system; Franchise; State action; Federalism; Drunk driving; Alcoholism (search for similar items in EconPapers)
JEL-codes: D43 K21 L41 L66 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:32:y:2012:i:4:p:379-392

DOI: 10.1016/j.irle.2012.08.001

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