Sunday, August 28, 2011

Rent Seeking in Wine Distribution

The following story is a great example of rent seeking behavior on the part of the wine and beer distributors.

"It's very important for us to ship our wine across state lines," she said. "It's a very important revenue stream for us."

But Woolsey and representatives of the growing number of small wineries in Arizona fear that a bill pending in Congress could lead them to lose the ability to sell directly to customers beyond - and perhaps even within - the state.

The reason for the proposed law:

Pitts called the legislation, introduced by Jason Chaffetz, R-Utah, an attempt by wholesalers to monopolize the distribution of alcohol.

"There are only about half-a-dozen major wine distributors in the U.S. due to mergers and acquisitions," he said. "They're trying to change the federal law to guarantee that their business model would be effective."

The basic idea is that if you can't win in the marketplace, get the government to intervene. The small wineries and brewers won't have the resources to fight state and local laws. The big distributors do have the resources to get the laws passed.

The distributors face the same problem as the big record labels. If producers (artists, wineries or brewers) are able to bypass the distributors (record companies, liquor distributors) then the distributors' revenue stream dries up (and consumers and producers benefit.)



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