10/30/2009

Utah's liquor monopoly rakes in big profits

I recently read an article that explained about the Utah's liquor monopoly. As per the article government can earn big revenue from liquor monopoly. According to article "nearly $100 million flowed into state and local treasurers from sales this fiscal year (ended June 30), up $2 million from last year and $20 million more than in 2006, according to a report released Tuesday by the Utah Department of Alcoholic Beverage Control. This year, total revenues topped $129 million, up from $126 million for 2008".
I think the liquor monopoly is good for the Utah state government. The liquor demand is also increase in Utah. As we know the demand curve for competitive firm is horizontal because they are price taker where as, the monopoly firm has downward sloping market curve. so I think by keeping the liquor monopoly government can reduce competition in a market and earn more profit by charging a higher price. Government can also increase its market power by liquor monopoly. so i think the liquor monopoly is good idea to reduce the Utah's budget shortfall.

www.allbusiness.com/food-beverage/food-beverage-sector-performance-prices/13008236-1.html

3 comments:

Brooklyn said...

No wonder Utah is in a better financial position than many other states. I think it's kind of ironic to in that the tougher times get the more people drink so the more Utah makes.

Dr. Tufte said...

-2 on Michael for multiple grammatical mistakes.

I am not sure that the economics of this post are well thought through.

There are really 2 monopolies in question here: the monopoly to tax liquor, and the monopoly to sell it. Utah has both, most states only have the former.

In terms of taxes on liquor, Utah's are not the highest, so it isn't clear that this state's behavior is that unusual.

In terms of monopoly profits from retailing, it doesn't look like the state of Utah takes this seriously as a revenue source.

In fact, I'd say that given Utah's cultural disposition towards alcohol, that the state is doing a crappy job of using its monopoly power.

You need to recall the (insufficiently emphasized) point that prices are more than the monetary value we exchange. Utah's position seems to be to raise the non-monetary price of liquor: through limited hours of state stores, limited licenses for bars and restaurants, social stigma, increased DUI enforcement and penalties, and so on. If they were really interested in monopoly profits, they could do just as much to discourage alcohol consumption by making sure that (say) San Francisco prices were charged for beer and drinks than they could by all the micromanagement that they do engage in.

Tyler said...

Utah passes new liquor laws. The state is coming out of the wood works to draw in more tourist, will this new law actually work? It's nice being able to go to the bar and get a drink and not having to fell out a membership form. From and economic stand point I think this will do more for the state then higher liquor taxes. Because once you draw the tourist in they don’t only buy liquor but they also buy other goods increasing the states revenue.

http://www.usatoday.com/news/nation/2009-03-12-utah-liquor_N.htm