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Why don't they just tax beer and let anyone sell it (subject to whatever regulations they might impose to make it slightly harder for teenagers to get beer). If the tax rate was set equal to the excess profits captured by the beer store, that would seem to have the same revenue/welfare implications, while permitting possible welfare gains from either lower cost or better quality providers.

The Wynne government is going to give the Rae government a run for its money in the area of policy incompetence.

> Why don't they just tax beer and let anyone sell it

Political costs. Putting the squeeze on the beer store is easy; getting rid of the beer store monopoly invites argument from both the monopoly itself and from quasi-prohibitionist groups at "making beer more accessible."

The efficiency gains from lower-cost or higher-quality providers are theoretical, in that these providers don't yet exist with sufficient clout to have a lobby.

For some reason Ontarians generally support monopolistic of sale of alcohol. Years of history and public opinion polls bear this out.

Given this, the government's actions to increase revenue obtained from the monopoly is sensible.

1) LCBO is targeting new sales channels and improved efficiencies. Not price increases. Reduced deadweight loss. Pareto improvement with gains accruing to government.
2) Beer Store monopoly profits accrue to foreign firms. Ontario intends to capture more of this. Pareto improvement with gains accruing to government.
2a) If the Beer Store raises beer prices to maintain firm margins, as they threaten, beer may be priced uncompetitively with the LCBO. Also, the government will likely a clever mark-up that prevents counter-pricing schemes from the Beer Store: i.e. for every $1 price increase, government margin increases by an additional, cummulative 20%. In this context, the Beer Store will likely take little action.

The question whether the government should reduce their monopoly profits and increase the consumer surplus? That would contradict the role of the monopolist Ontarians seem happy to have given the Province.

The last panel on the subject proposed dramatically reducing the monopoly. Their recommendations fell on deaf ears politically and publicly. Perhaps being the head of an oligopolistic chartered bank, and long-time civil servant, gave Ed Clark some necessary skills about working within the Overton Window.

Bob, for the reasons above I would not characterize this as policy incompetence. A better example of policy incompetence would be income-splitting, which as Frances pointed out satisfies no economic criteria and the public is generally against.

Mark,

I'm prepared to accept that expropriating the profits of the Beer Store is an improvement over the status quo (though the status quo is a testament to the perserverence of bad policy). I question the rest of your assertions.


(1) New LCBO strategies. Keep in mind, this is an organization which, for years, has been insisting that it's suppliers charge it more (i.e. consciously not using its buying power to drive down prices). So you'll forgive me if I take its commitment to improved efficiencies with a grain of salt. Moreover, historically, consumer friendly change at the LCBO has only occured under the threat of privatization (the radical change during the Harris years coming to mind). Even then, the observation was made that it responded by spending more money (i.e. reducing government profits) to fix up stores, offer samples, distributing magazines, etc., rather than finding ways to deliver alcohol more efficiently (though, in fairness, I will say that customer service on the part of its employees did improve).

(2) Not clear what you mean by Pareto improvement - this is just a transfer of wealth from one party to another, not a pareto improvement. It's welfare improving for Ontarians, I suppose, to the extent you're transfering income from foreigners - query whether that raises NAFTA issues.

2(a) History suggests that trying to regulate profit margin can be a tricky exercise, given that the regulated company knowns more about its expenses then the government does - the usual strategy is to drive up your costs, a plausible strategy here given that the Beer Stores owners are also its largest suppliers.

Finally, I don't think opinion polls bear our your assertion that there is public support for a monopoly on the provision of alcohol (though it's been a while since I've seen any on the subject). The public likes the revenue that the government gets from selling booze. They'd also like to be able to buy beer and wine with their groceries. No reason that they can't do both.

ad hominem - Who else remembers Ed Clark as one of the fathers of the of the National Energy Policy, circa 1980?

"A better example of policy incompetence would be income-splitting, which as Frances pointed out satisfies no economic criteria and the public is generally against."

Agree with you on that - it won't be implemented in any meaningful form.

The government must have a monopoly over the sale of liquor. And gambling too. These are immoral destructive things. Imagine, private loquor sales and card games would lead to social decay, family ruin, gamblers out of control.

Good thing the government is doing this. Why if private people ran these immoral enterprises we'd have a big casino in Windsor so we could get the money but not pay the social cost of these demon activities.

Bob,

1) If you don't believe the panel's plan will occur then we're not really discussing the merits of the policy. As for whether past efforts to improve the sales environment and customer experience are investments or costs is a tough distinction. My view is that they were investments, one reason for which is the investments have been going on for over a decade now, with other jurisdictions like the SAQ, following suit. They must be productive in some way.

2) I'm considering the two agents here Ontario consumers and the Government. In that sense it's a Pareto improvement (in my view). I'm not sure about WTO issues, but I doubt redefining the scope of a government-legislated monopoly would be contentious. But I'm no expert.

2a) Since the LCBO has a clear view of the industry and is the main competitor in this scenario, it would be difficult for the Beer Store to start playing games. For example, say the Government imposes a 50% surcharge on the Beer Store. If the price of beer go up a proportionate amount customers would flock to the LCBO. Alternatively, if prices didn't change then would the Beer Store cry foul and say they make no profit now? The LCBO knows how much it costs themselves to sell a 24 and wouldn't respond to complaints. Recalling my micro/game theory, the logical outcome is the Beer Store accepts reduced margins. It would also increase the incentive for the Beer Store to reduce their costs. The true balance will come in setting the right surcharge that prevents the Beer Store from closing.

The elected majority party supports the monopoly while both the second and third parties either support that position or do no challenge it. For those reasons, I believe there is widespread support for the monopoly. Historically, political challenges to that monopoly have been at best met with apathy. The strength of that belief is more of an open question and may be quite weak.

I'm digressing, but I could see a situation similar to the City of Toronto's garbage workers, where a lengthy strike reveals the public's underlying frustration with public-sector provision. Anecdotally though, my read based on conversations and what is in the media, there is unusually strong support for the LCBO relative to something like garbage provision. One of the true obstacles to the Government maximizing monopoly profits is the union. Comparing with the a garbage strike that goes on for 4 weeks, generates significant public anger and may cost the government and/or union political capital but the impact on the gov't finances is smaller, and maybe even positive. A four week strike at the LCBO would have the same effect and cost the government significant amounts of lost revenue. The incentive to the government to deliver concessions is amplified and evidenced by how quickly contracts are signed before that Victoria/Canada/Labour Day weekend. The risk in enhancing government returns is that more of that profit is captured by labour.

Monopolies, at least in the form of crown corporations, don't necessarily cost more for less service. I compare the auto insurance and electrical grid monopolies of Manitoba to the highly competitive energy and insurance markets 300 miles south in Minnesota. Both services cost less and deliver more in good old socialist Canada than in Minnesota.

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