Thursday, 26 August 2010

Minimum pricing of alcohol

In a previous posing, The alcohol law reform package, I noted that,
A minimum price regime is just as stupid for alcohol as it is for any other product. If the price is set below equilibrium it doesn't matter and if it is set above, then supply will be greater than demand and consumers lose out.
Now thanks to Offsetting Behaviour I see I could in fact be right, consumers do lose out from minimum prices. Eric quotes from this article in The Press and Journal:
The Scottish Government’s plan to control the price of alcohol will barely tackle problem drinking while costing consumers £184million a year, according to a leading consultancy.
The Press and Journal article is reporting on research by The Centre for Economics and Business Research. Their reports are available here and here.

In my posting I also said,
Also it will just make it easier for retailers to find ways to collude and increase prices for alcohol sales.
The CEBR says
In effect, minimum pricing legislation forces firms to price as if they were in a cartel.

In addition to promoting cartel style profits, minimum pricing is also likely to lead to a reduction in the number of alcohol producers and brands available to consumers, as such price levels would ‘crowd out’ producers at the lower end of the market.
So minimum prices do nothing to effect problems drinking, imposes huge costs on consumers, leads to cartel pricing and actually harms some producers.
Senior CEBR economist Benjamin Williamson said: “This report shows that the case for minimum pricing is extremely weak. It would not target problem drinkers and would have a genuine negative economic impact in terms of jobs, trade and costs to the consumer.”
Well those have to be great reasons for wanting minimum prices ...... Not!

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