Connecticut’s system of inflating the retail price of alcoholic beverages may not be unconstitutional and a violation of federal antitrust law, as the Total Wine & More beverage retailing chain recently charged in a lawsuit brought in federal court. But this argument against the system is not novel. Forty years ago a professor at the University of Connecticut School of Law, Leonard Orland, made the same argument in support of the courageous effort of state Sen. Robert D. Houley (D-Vernon) to repeal the alcohol-pricing system.
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Connecticut's system of inflating the retail price of alcoholic beverages may not be unconstitutional and a violation of federal antitrust law, as the Total Wine & More beverage retailing chain recently charged in a lawsuit brought in federal court. But this argument against the system is not novel. Forty years ago a professor at the University of Connecticut School of Law, Leonard Orland, made the same argument in support of the courageous effort of state Sen. Robert D. Houley (D-Vernon) to repeal the alcohol-pricing system.
Unconstitutional or not, the system remains a prime example of the venality and corruption of government and politics in Connecticut. Now it is Gov. Malloy who courageously proposes repealing the system. While Connecticut seems to be the only state operating this way, the General Assembly has let the system continue as legislators cower before the “mom-and-pop” liquor store operators, of whom every legislator's district has many.
The law gives liquor wholesalers and retailers the power to set minimum prices for all alcoholic beverages, thereby preventing most serious price competition. The law also tightly restricts liquor-store permits, establishing what in economics is called a barrier to entry. As a result, though Connecticut is a densely populated state, it has hundreds of small liquor stores charging the highest prices in the country even while offering poor selection, and so state residents do a lot of shopping out of state for cheaper and greater variety of liquor, wine and beer. This costs the state a lot of tax revenue.
Total Wine & More didn't just sue to overthrow the pricing system. The retailer actually defied it and began selling liquor, wine and beer below the minimum prices, before the Department of Consumer Protection stepped in to stop them. This may have captured the public's attention.
Defending its exploitation of consumers, the Connecticut Package Stores Association, dominated by the mom-and-pop stores, complained to the state Consumer Protection Department's Liquor Control Division, seeking enforcement of the price-inflation system against Total Wine & More. Their argument worked, but the issue is likely to be fought in the courts for a while unless the legislature grows a backbone.
The package stores association, led by veteran lobbyist Carroll Hughes, argues that Total Wine & More is engaging in predatory pricing and that if prices are deregulated, small liquor stores will go out of business, state tax revenue from alcoholic beverages will fall, and a few liquor supermarkets will control the business.
But since the small stores survive only because of the state policy driving prices up and preventing competition, the small stores are actually the predators. Further, deregulation of prices will increase alcoholic beverage sales in the state by diminishing the benefit of shopping out of state. And if somehow sales and alcohol tax revenue decline under deregulation anyway, state government could increase the tax, and then revenue from public policy would flow where it should, to the government.
The arguments of the package stores association are disproved by state government's failure to establish a price-inflating system for any other product except cigarettes. Such a system may create extra jobs in retailing but only at everyone else's expense.
The bigger issue here is that Connecticut really needs no alcoholic beverage regulation at all besides its ban on sales to minors. Supermarkets, which are already allowed to sell beer, should be allowed to sell wine and liquor too, just as liquor stores should be allowed to sell groceries. Why should shoppers have to make separate stops? A few other states have figured this out.
If price inflation for liquor is repealed and antitrust law is enforced, prices will fall, shopping will become more convenient, and the General Assembly will be less contemptible as a special-interest tool, though of course it could still pander to the teacher unions.
Chris Powell is managing editor of the Journal Inquirer in Manchester.
