When Government Monopoly Works

It may come as both a surprise and a disappointment to other Thinking Men that I am not entirely ecstatic about beginning law school. Obviously there are the haunting nerves, uncertainty, and masochism that come with the first year of law school I would rather avoid. Inevitably, too, I’ll find myself comparing American with Dartmouth and lamenting the amenities of the latter that I’ve taken for granted, such as its extraordinary safety, pristine landscape, and incredibly cheap liquor. I’ve been coming to terms with the first two for a while, without having even moved to Washington yet, but today the third became painfully clear.

I was at Sam’s Club stocking up on living necessities for this coming year, when it came time to cross 'bourbon' off my checklist. Sam’s smacked me in the face with a $23 bill for a handle of Jim Beam. $23! I’m unfortunately unfamiliar with liquor prices in Florida, and in light of my evidently price inelastic preferences for average bourbon, I submitted and coughed up the cash.

The sting I felt in turning over the money derived from my accustomedness with paying $17.99 at the West Lebanon, NH liquor store the last couple of years, one of the state's 77 such stores. New Hampshire is one of 18 states where the distribution of liquor is controlled entirely by the state government. Prices are standardized throughout the state to suppress competition between stores. They do not sell any products with less than 6% alcohol, so the liquor stores do face competition from vendors of substitutable alcoholic products. Nevertheless, New Hampshire enjoys a government-controlled monopoly on the sale of liquor.

My inclination is to cringe at the thought of both a monopolized industry and one with substantial government intervention. My apprehensions with both are foremost that the prices of goods would skyrocket as a result of the government's inefficiency and the monopoly's profit-maximization, that the quality of the products would be inferior, and that the incentive for innovation would be absent. This is the doctrine of any basic microeconomics or industrial organization class.

However, in this case, not only does the government not produce the goods, but there is not much need for innovation in retail. Where it is necessary or useful for efficiency in sales, consumers can safely rely upon its development by other firms in private, minimally regulated markets. Indeed, in the presence of such an overwhelming excise (and sales) tax, even the ultra competitive, economies-of-scale wielding Sam’s Club can’t overcome the heavy tax burden and offer an equal product for cheaper than New Hampshire’s inefficient monopoly. Indeed, the prices are so alluring that the stores frequently draw in customers from neighboring states.

Consider further that the New Hampshire state liquor commission provides $100 million of tax revenue to the state annually, and New Hampshire’s setup looks like a truly preferable alternative to a privatized system. Of course, in the absence of enormous taxes, a perfectly competitive private marketplace would be ideal for consumers. But in an industry where innovation is limited and taxes are greater than the reduction in prices that competition and efficiency represent, a public monopoly is better for consumers, producers, and the government. The losers in this arrangement? Would-be owners of liquor stores. Plenty of other commodities and brands devoid of a cumbersome excise need to be delivered to consumers. If retail is truly their calling, they can fill one of those job openings.