Friday, May 16, 2003


So, conventional wisdom tells us that state-run industries are inevitably inefficient and bad for consumers. It is true that without competitive pressure, state monopolies might lack the incentive to provide both the quantity, quality, and prices that might arise in a truly competitive environment. And, state-run industries often become patronage machines - simply ways to dole out fiefdoms to favored donors and supporters.

However, most discussions of state-run monopolies ignore the other side of the equation - the fact that the state can be not just the sole provider of a particular good or service, but also the sole purchaser of a particular good or service - a monopsonist.

In both Pennsylvania and New Hampshire the state is the sole distributor of wine and liquor. Consumers must purchase these through state-run retail outlets, and restaurants must go through the state-run distributors themselves.

Roughly speaking, I would say that New Hampshire residents are quite happy with this system while Pennsylvania residents are not. The reason is that both states have an advantage on the whole sale end - by being the sole purchasers they can manage to obtain lower prices from wine and liquor producers in the same way that Wal-Mart can obtain lower prices from manufacturers. In theory, such lower prices could be passed onto consumers, making them happier and drunker.

By and large the system in Pennsylvania isn't very popular. The reason is that the liquor control board in PA has a dual function - both distribution and enforcement of liquor laws, which kind of puts it at odds with itself. The state has a sizeable anti-alcohol contingent, stemming back to prohibition, and there are plenty of dry towns. In addition, Pennsylvania is a big state geographically, which limits competition from border states for much of the population.

On the other hand, the New Hampshire system seems to work quite well. Stores are large and prices are cheap. The primary difference is that New Hampshire's retail outlets are designed to be competitive - competitive with the liquor sales in the surrounding states. This map displays the rather strategically located outlets along the border of the state. In fact the stores are frequently located at highway rest stops to make them that much more convenient.

The point is, by being a big buyer, New Hampshire can have lower liquor procurement costs. By being competitive, and keeping prices low, they can attract even more business and revenues from residents high cost states who drive over the border and load up their SUVs with their monthly's supply of happy juice.

UPDATE: David Appell informs me that one can purchase wine in non-state run stores in New Hampshire.