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American Economic Review: Vol. 103 No. 2 (April 2013)

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Public Monopoly and Economic Efficiency: Evidence from the Pennsylvania Liquor Control Board's Entry Decisions

Article Citation

Seim, Katja, and Joel Waldfogel. 2013. "Public Monopoly and Economic Efficiency: Evidence from the Pennsylvania Liquor Control Board's Entry Decisions." American Economic Review, 103(2): 831-62.

DOI: 10.1257/aer.103.2.831

Abstract

We estimate a spatial model of liquor demand to analyze the impact of government-controlled retailing on entry patterns. In the absence of the Pennsylvania Liquor Control Board, the state would have roughly 2.5 times the current number of stores, higher consumer surplus, and lower payments to liquor store employees. With just over half the number of stores that would maximize welfare, the government system is instead best rationalized as profit maximization with profit sharing. Government operation mitigates, but does not eliminate, free entry's bias against rural consumers. We find only limited evidence of political influence on entry. (JEL D42, D72, L11, L12, L43, L81)

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Authors

Seim, Katja (U PA)
Waldfogel, Joel (U MN)

JEL Classifications

D42: Market Structure and Pricing: Monopoly
D72: Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L12: Monopoly; Monopolization Strategies
L43: Legal Monopolies and Regulation or Deregulation
L81: Retail and Wholesale Trade; e-Commerce


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