Sometimes monopolies are best left alone. That’s often the case when they aren’t harming consumers, but it can also be true when they are—for example, if their product is unhealthy, for customers and society, and higher prices mean people will use less of it.
The Federal Trade Commission is said to be preparing a lawsuit against Southern Glazer’s Wine and Spirits, on the grounds of price discrimination under the Robinson-Patman Act. The premise would be that the company, which is based in Florida and distributes alcohol in 44 states, is charging higher prices to small retailers than to large chain stores, which may be keeping small retailers out of the market and limiting supply. The investigation has been going on since at least last year.
I say this as a longtime advocate of abstention, so make of it what you will, but: If Southern Glazer’s actions are limiting the supply of alcohol and boosting its price, then so much the better.
There is an overwhelming body of evidence that drinking alcohol leads to more traffic fatalities, reduced productivity and higher rates of violence, not to mention the unquantifiable cost in ruined lives. Legal prohibition of alcohol proved unworkable, but some of the benefits of reduced consumption can be gained by allowing prices to rise and to stay high. One NIH investigation estimated the costs of alcohol use amounted to 2.6% of U.S. GDP.
If a monopoly has some positive social consequences, all the more reason to let it persist. I would also be pleased, for example, by a monopoly in non-medical marijuana.
There are many instances of unlawful monopoly power in market economies, and most of them are best ignored. The FTC, like most parts of the government, does not have unlimited resources. Government workers usually are underpaid relative to the private sector, particularly in antitrust law, where pay tends to be much higher in the companies with monopolies and the law firms that defend them. So why spend resources on a case unlikely to make society better off?
The FTC has not brought a price discrimination suit since 2000, in a case involving kitchen spices. Have there been no violations of the Robinson-Patman Act in the last quarter-century? Of course there have. But the FTC has reasonably decided to pursue higher priorities. A degree of discretion in these areas is unavoidable, so why not invoke some here?
The FTC has never enforced the law literally, blind to the broader social consequences of particular decisions—least of all now. Chair Lina Khan is renowned for her view that antitrust authorities should consider the long-term ecosystems of the sectors they oversee and regulate, and take a very broad view of how antitrust should be enforced. Most of all she has applied that doctrine to the larger technology firms. Whether or not you agree with her, that has been the status quo.
The FTC this week has declared that it will bring very close scrutiny to the AI sector, and to its alliances with large tech companies such as Microsoft. Again, whether or not you agree with that decision, it was taken because AI is considered a matter of great social and economic importance. There is in fact a lot of competition in the AI sector, including OpenAI, Anthropic, Google and Meta, not to mention thousands of startups. You still might think that FTC investigation is justified. But it would be hard to make that argument if this were, say, the toothpick industry.
Or you might argue that a higher tax on alcohol would be better than allowing a private monopoly. Then at least some of the revenue from higher prices would go to the government. But even if you would prefer government have that money, there is in reality very little chance of higher alcohol taxes. The drinks lobby would oppose them, as would many drinkers and the restaurant industry, which earns a fair amount of profit from alcohol sales.
Every now and then some state or local anti-alcohol coalition might push through a higher tax. But it remains unlikely—and if the goal is to discourage drinking by keeping prices high, then the FTC’s action would be counterproductive.
Sometimes monopolies should be tolerated because they can be more innovative, as Joseph Schumpeter stressed. Other times they should be allowed because higher prices are flat out a good thing—or at the very least not worth fighting about.
Again, I don’t drink myself, and I have no sympathy for the supplier here. Still, I hope the FTC applies some common sense. Americans should be allowed to enjoy the benefits of a higher price for alcohol.
Tyler Cowen is a Bloomberg Opinion columnist, a professor of economics at George Mason University and host of the Marginal Revolution blog.
This article was provided by Bloomberg News.