Competition, Consumer Welfare and State Alcohol Regulation

Competition, Consumer Welfare and State Alcohol Regulation

Written Testimony Submitted to the Committee on the Judiciary, U.S. House of Representatives
Jerry Ellig | Sep 29, 2010

Today’s hearing addresses a number of important economic and public policy issues for American consumers. Prudent public policy seeks the right balance between the responsible consumer’s interest in low prices and availability and the potential social costs associated with underage drinking and irresponsible use of alcohol by adults. The Commerce Clause and the Granholm decision require just such a balance. Creating some form of a Commerce Clause exemption for state alcohol laws would disturb this balance and raise the risk that anticompetitive laws would be tailored to take advantage of such a refuge.

Exempting anticompetitive and discriminatory state alcohol laws from federal scrutiny would likely create significant costs for consumers. Studies of the consumer effects of direct wine shipment laws illustrate this point. Facially discriminatory state laws reduce the variety of wines available to consumers and increase prices. Laws that are neutral on their face but discriminatory in practice, such as production caps on wineries eligible for direct shipment, create consumer costs similar to those created by facially discriminatory laws.

The argument that America faces a widespread and systemic problem that justifies a significant change in the federal legal standard applicable to state alcohol laws is nothing but an assertion. Underage drinking and alcohol abuse are declining, and they have continued to decline since the 2005 Granholm decision that is alleged to be the source of significant problems. Many of the social ills associated with alcohol deregulation in the United Kingdom seem to stem largely from its 5-year-old minimum drinking age and (until recently) nonexistent enforcement of the 18-year-old minimum purchase age. The best available evidence suggests that states can control underage access through age verification, which no reasonable person has suggested would violate Granholm.

The Commerce Clause allows states to discriminate against interstate commerce if they have actual evidence that such discrimination is necessary to accomplish a legitimate state goal that cannot reasonably be accomplished by less restrictive means. Creating a special exemption to Commerce Clause scrutiny for state alcohol regulation could easily encourage other industries to flood Congress with requests for special exemptions that would shield anticompetitive state or private practices from federal scrutiny.Today’s hearing addresses a number of important economic and public policy issues for American consumers. Prudent public policy seeks the right balance between the responsible consumer’s interest in low prices and availability and the potential social costs associated with underage drinking and irresponsible use of alcohol by adults. The Commerce Clause and the Granholm decision require just such a balance. Creating some form of a Commerce Clause exemption for state alcohol laws would disturb this balance and raise the risk that anticompetitive laws would be tailored to take advantage of such a refugeExempting anticompetitive and discriminatory state alcohol laws from federal scrutiny would likely create significant costs for consumers. Studies of the consumer effects of direct wine shipment laws illustrate this point. Facially discriminatory state laws reduce the variety of wines available to consumers and increase prices. Laws that are neutral on their face but discriminatory in practice, such as production caps on wineries eligible for direct shipment, create consumer costs similar to those created by facially discriminatory laws.

The argument that America faces a widespread and systemic problem that justifies a significant change in the federal legal standard applicable to state alcohol laws is nothing but an assertion. Underage drinking and alcohol abuse are declining, and they have continued to decline since the 2005 Granholm decision that is alleged to be the source of significant problems. Many of the social ills associated with alcohol ―deregulation‖ in the United Kingdom seem to stem largely from its 5-year-old minimum drinking age and (until recently) nonexistent enforcement of the 18-year-old minimum purchase age. The best available evidence suggests that states can control underage access through age verification, which no reasonable person has suggested would violate Granholm.

The Commerce Clause allows states to discriminate against interstate commerce if they have actual evidence that such discrimination is necessary to accomplish a legitimate state goal that cannot reasonably be accomplished by less restrictive means. Creating a special exemption to Commerce Clause scrutiny for state alcohol regulation could easily encourage other industries to flood Congress with requests for special exemptions that would shield anticompetitive state or private practices from federal scrutiny.

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