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If beer were cheaper, would Americans drink more?

Posted by Kevin Hartnett  January 11, 2013 11:30 AM

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gin lane2.jpegThe current issue of Washington Monthly has a really interesting diagnosis of why alcoholism is rampant in Britain—and why the U.S., which is comparatively dry for now, may be headed in the same direction.

Britain’s problem, journalist Tim Heffernan explains, is that beer in the UK is extremely cheap. And it’s really cheap because the big beer companies there are highly vertically integrated: They brew the beer, distribute the beer, and sell the beer to consumers. This total control of the distribution chain allows brewers to cut out middlemen and keep prices low—and the cheaper beer is, the thinking goes, the more of it people will necessarily consume.

In the United States vertical integration of liquor companies has been illegal since the end of Prohibition:

Since the repeal of Prohibition, such constraints on vertical integration in the liquor business have also been backed by federal law, which, as it’s interpreted by most states, requires that the alcohol industry be organized according to the so-called three-tier system. The idea is that brewers and distillers, the first tier, have to distribute their product through independent wholesalers, the second tier. And wholesalers, in turn, have to sell only to retailers, the third tier, and not directly to the public. By deliberately hindering economies of scale and protecting middlemen in the booze business, America’s system of regulation was designed to be willfully inefficient, thereby making the cost of producing, distributing, and retailing alcohol higher than it would otherwise be and checking the political power of the industry.

But as Heffernan shows, beer companies in the U.S. are beginning to find ways around these regulations. For one, the beer industry has undergone massive consolidation to the point where just two companies—Anheuser-Bush InBev and MillerCoors—now control 80 percent of the U.S. beer market, and these two mega-brewers are using their clout to cut into distributors’ margins. For two, retail sales of alcohol are increasingly consolidated through big box chains like Walmart and Costco, which thrive on cutting prices and boosting volume and which give the two big brewers potentially more direct access to consumers. The net result, Heffernan worries, is that soon American brewers may be able to drown U.S. drinkers in beer the way U.K. brewers do.

It's a provocative argument, but as commenters on the article have pointed out, Heffernan’s analysis has a few potential problems: Monopoly control over an industry tends to result in higher prices, not lower prices, and he doesn’t present any evidence that alcohol is actually more expensive in the U.S. than in the U.K. At the same time, the argument that price is a pure or even majority driver of alcohol consumption ignores other factors that determine how much people drink, like cultural values, fear of sanctions against drunkenness, and the fact that alcohol is addictive.

If you want to look at some research on the relationship between price and alcohol consumption, there's this study in the U.K., which found that increasing prices did not do much to lower how much people drank, and this analysis from the National Institutes of Health which came to the opposite conclusion.

* Update 1/14/13 - I got in touch with Heffernan over the weekend to ask about the price question that many readers have raised – the evidence seems to refute his point that beer in the UK is unusually cheap. He acknowledged that beer is actually cheaper for consumers in the US, but pointed out the UK has seen a “dramatic and well documented” increase in the affordability of beer since 1980, which may well be adding fuel to its drinking problem. “I'd be disappointed if the larger argument about the dangers of beer-industry consolidation got overshadowed by the argument over which nation drinks more cheaply,” he wrote.

Image: "Beer Street" and "Gin Lane" by William Hogarth, 1751

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