State price controls skunk the consumers

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Get ready to pay more for your beer, Pennsylvania.

The Legislature just revived an old law that almost certainly will jack up prices to fatten the wallets of beer wholesalers.

Wholesalers are the select middlemen who, under state law, “import” beer from brewers and re-sell it to retail distributors. Each has exclusive rights to brand names within geographic regions, so that, in Philadelphia, for instance, there’s one Anheuser-Busch wholesaler (Penn Distributors), one Coors wholesaler (Antonio Origlio) and one Miller (Clement & Muller). The wholesalers carry other, less popular brands, too, but the Big Three is where they make most of their money.

Since Bud, Miller and Coors basically taste the same and benefit from massive corporate advertising campaigns, competition between wholesalers frequently focuses on price. We usually drink whatever’s cheapest, so wholesalers offer one-week discounts to distributors with the understanding that the savings will be passed on to the consumer.

That’s the way most business works in America. It’s called capitalism.

But competition is hard work.

To avoid it, wholesalers can talk with each other and secretly agree to avoid ugly price wars. Several retailers have told me they’ve received notices from wholesalers within hours of each other that contain identical price hikes for competing brands. Maybe it’s a coincidence, but it smells like price-fixing, and it’s illegal.

Illegal, that is, unless the state government steps in and does the job for the wholesaler. Then it’s called price control.

That’s what the Legislature just OK’d.

House Bill 2257, now awaiting Gov. Ridge’s signature, requires wholesalers to maintain prices for 120 days at a time. No more one-week specials, no possibility of a price war that could drive down the cost of a case of beer. With a 120-day freeze, wholesalers can set higher prices today without fear of getting undercut next week by their competitors’ limited-time bargains.

Beer wholesalers have a different spin on this law. Jay Goldstein, executive director of the Pennsylvania Beer Wholesalers Association, tells me the bill will actually “secure good pricing for the Pennsylvania consumer.”

First, he says, price controls are designed to prevent the Big Three from selling their beer at a loss to drive out smaller, regional brewers, like Yuengling. Secondly, he says, nothing in the law would prevent retail distributors from cutting their own prices to the consumer.

Frankly, I’m not sure what to make of Goldstein’s first argument. I trust Bud, Coors and Miller about as far as I can toss a keg. These guys would like nothing better than to increase market share at the expense of the little guys. But Pennsylvania hasn’t had price controls for two years, and last time I checked, Yuengling was doing just fine, thank you.

The second argument is hogwash. Retail distributors generally scrape by on a minimal markup of about 15 percent, so they rarely cut prices without some help at the wholesale end. Almost all these retailers are small, family-owned businesses that, because they are prohibited from owning more than one license, do not have the clout to demand lower prices from wholesalers. Just as you and I depend on competition between distributors to get the best price, retailers rely on competition between wholesalers to get their best deal.

And now the Legislature has voted to end the competition.

If this strikes you as patently anti-consumer, that’s the way the courts see it, too.

In 1994, a federal judge ruled an similar price-hold law unconstitutional under the Sherman Anti-Trust Act. The judge said the state had no good reason to control prices and, even if it did, had failed to appoint anyone to supervise those controls.

So this bill calls for establishing a new bureaucracy within the LCB that will monitor prices and be headed by . . . that’s right, a Beer Czar!

The governor’s office won’t say which direction their boss is leaning. You might expect Ridge, a Republican, to reject this bill as unneeded government intrusion into commerce – it will cost $300,000 to operate a beer-pricing board, to be funded by licensees (who will undoubtedly pass the cost on to consumers).

But don’t forget, this is Pennsylvania politics; Joe Sixpack asked Bob Warner, the People Paper’s campaign finance whiz, to crunch a few numbers on his Pentium, and he found that beer-related interests have contributed nearly $50,000 to Ridge in the past three years.

That’s a nice piece of change, Guv, but I urge you to veto this bill. Instead, you should ask the attorney general to investigate illegal price-fixing.

And if you do sign the bill, give me a call. Czar Sixpack – it’s got a nice sound, don’t you think?

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