Tuesday, September 29, 2009

Government Endorsed and Sanctioned Monopolies - Corruption!

If you recall, my last article touch on how the states liquor license policies are clear violation of the Sherman Antitrust Act yet no one does anything about it. I believe the reason someone doesn't do anything is because the public is not educated on how the liquor license process and how it helps create monopolies.

In the article I want to create awareness of how the liquor manufacturers and the liquor distributors have government sanctioned and endorsed monopolies. But let read what Wikipedia says about the Sherman Act.

"The Sherman Antitrust Act (Sherman Act,[1] July 2, 1890, ch. 647, 26 Stat. 209, 15 U.S.C. § 17) requires the United States Federal government to investigate and pursue trusts, companies and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by the United States federal government."

There are four levels in between the manufacturers and the consumers: (1) Manufacturers are the companies producing the liquor, (2) distributors are the ones taking the manufacturers product and selling it to retail places such as restaurants and liquor stores, (3) the retail stores such as restaurants, liquor stores, grocery stores, etc.. and (4) the consumer.

The manufacturers sign exclusive distribution agreements for territories with individuals or companies. This means there is one distributor for each product within a given territory. In other words, if a restaurant wants to buy a case Jack Daniel's, there is only one choice the restaurant owner may purchase Jack Daniel's. The restaurant owner can't go to costco to buy it. He can't use another source to purchase the Jack Daniel's. THe owner has no other choice but to buy from the one distributor. This is controlled by the state and federal licensing authorities.

Here is what the dictionary says about Monopoly:
"exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices."

In our situation, the liquor manufacturers give exclusive control of their products to one distributor in a particular area. There is absolutely no competition for that specific product in a territory, none! So this by definition is a monopoly. There is no price competition. A vendee must pay whatever price the distributor or manufacturer wants to charge.

But nothing will be done until the public is educated to understand why so many high profile politicians want these distributorships and will often do unethical thing to get them - these distributorship are cash cows!

But the public are the ones hurt through higher prices.

So please spread the word and one by one we can make this an issue where we can pressure our congress to change these rules and we can defeat the big liquor companies, big distributors resulting in our drinks costing less.

Saturday, September 12, 2009

State Sponsored Monopolies

It's been a while since I wrote something. I'm still on the "kick California" mode.

In 1890, congress and the President passed the Sherman Antitrust Act. According to Wikipedia "The end sought was the prevention of restraints to free competition in business and commercial transactions which tended to restrict production, raise prices, or otherwise control the market to the detriment of purchasers or consumers of goods and services, all of which had come to be regarded as a special form of public injury."

In California the entire alcohol industry is a complete monopoly sponsored by the state. In the end, the consumer and the small business are hurt while big business thrives by this state sponsored monopoly.

How is it a monopoly one may question? First let's start with the issuance of liquor licenses, particularly hard liquor. California legislation requires liquor licenses to be issues by county and issued each year. In most cases these licenses are not transferrable to other counties. There are a fixed number issued by county each year. The number issued is based upon population growth ratios for each county. One can obtain a variance to the law, but that's not often done. For example, Mono county has very few people living in it. But Mono county is where Mammoth Lake resorts are located. Every one knows the population can swell during the ski season. There are 12 hard liquor licenses in that county. The Alcohol authorities issued 3 more this year despite there was no growth in population. Those licenses sell for $300,000 or more. These high prices can also be found in Napa, El Dorado and Placer Counties.

The state sponsored monopoly occurs because the only businesses that can afford to purchase a liquor license for $200,000 or more are large corporations building huge restaurants. The small business man has no chance of getting a liquor license. Sure he/she may get lucky and win one during the state lottery. But not likely.

The result is that in those counties where the liquor licenses are expensive the chain restaurants dominate the food and beverage businesses in the area. And the mom and pop restaurants are disadvantaged by not being able to serve hard liquor.

So the state legislators are sponsoring legislation that prevents free trade when they limit the alcohol licenses. The state needs to review this law, as many state already have. There needs to be simple demand and supply analysis complete to determine where these licenses need to be.

For example, if the market is bidding up license prices in a county it is obvious the demand is high and the supply low. Answer: issue more licenses in that county. If the state see license prices are low in another county, then stop issuing licenses.

The market for liquor licenses in California is efficient enough to do these simple analyses. We as consumer need to call our legislators to change these ancient ways of conducting business.

On my next article I will describe the monopoly that exists with liquor brand distribution all across the nation. It is shocking and very few consumers know it is happening.

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