New Report: Alcohol Industry Regulations Prevent Vertical Integration, Foster Competition and Protect Public Health
Source: Center for Alcohol Policy
March 8, 2017
A new report released by the Center for Alcohol Policy examines the history and purpose of tied-house prohibitions found in federal and state alcohol laws and explains how these prohibitions are as relevant today as when enacted following the repeal of Prohibition. The report, “The Dangers of Common Ownership in an Uncommon Industry: Alcohol Policy in America and the Timeless Relevance of Tied-House Restrictions,” was authored by former executive counsel for the Louisiana Office of Alcohol and Tobacco Control and alcohol law attorney Jessica C. Starns.
The report explores the history of tied-house laws and the abuses of pre-Prohibition alcohol commerce that served as the catalyst for their adoption, as well as the orderly and competitive marketplace they helped create post-Prohibition. The report also investigates the marketplace dynamics that make these laws as essential today as they were in 1933. Starns explains that recent alcohol policy debates have “disregarded the facts that the centuries old problems related to alcoholic beverages have not dissipated, and the well settled goal of the business firm to maximize profits remains key.”
Patrick Lynch, Center for Alcohol Policy advisor and former Rhode Island attorney general, said, “This report on the dangers of common ownership serves as an important reminder of the need for these laws and will be a valuable resource for those faced with questions about or challenges to tied-house and trade practice policies. These laws have a timeless relevance that is well documented in the Starns report.”
Tied-house prohibitions are laws and regulations that prevent a licensee in one tier of the alcohol beverage industry from having common ownership or financial ties to a licensee in another tier. (Suppliers and brewers are first-tier participants; distributors are second-tier participants; and retailers are third-tier participants in the three-tier system.) These measures, designed to prevent vertical integration in the alcohol beverage industry, are further supported by trade practice regulations that seek to limit other forms of influence that licensees of one tier can exert over licensees of another tier. These laws vary from state to state, as well as between the state and federal levels.
The report illustrates the conflict between the marketplace and public health issues America faced with alcohol pre-Prohibition, how alcohol control policies were formed by the states following Prohibition, and how the current alcohol regulatory system has worked to maintain a vibrant alcohol marketplace while at the same time addressing public health concerns. Starns explains, “The alcoholic beverage control system and its emphasis on restricting vertical integration within the industry is more relevant today than ever before and critical to ensuring the continuation of a healthy and prosperous marketplace while thwarting a recurrence of the conditions that once led to Prohibition.”
The report concludes, “Because of the trade-practice regulations: large, powerful corporations are not able to dominate the marketplace; consumers have a wide array of products to choose from; large and small suppliers are equally able to get their products to the market; retailers are free to determine what products they will stock and how they will place them and small retailers can compete with their larger counterparts; and, the states can mitigate the public health and safety dangers that afflicted the pre-Prohibition saloon by preventing communities from being inundated with cheap alcohol.”
The report was funded by a grant from the Center for Alcohol Policy and will be distributed to policymakers and alcohol regulators throughout the United States. The report also is available on the Center’s website.
The Center for Alcohol Policy is a 501c(3) organization whose mission is to educate policymakers, regulators and the public about alcohol, its uniqueness and regulation. By conducting sound and scientific-based research and implementing initiatives that will maintain the appropriate state-based regulation of alcohol, the Center promotes safe and responsible consumption, fights underage drinking and drunk driving and informs key entities about the effects of alcohol consumption. For more information, visit www.centerforalcoholpolicy.org or follow the Center on Twitter at www.twitter.com/AlcoholPolicy.