The Beer Store, Monopoly Profits and the Potential for Government Revenue: An Economic Analysis

نویسنده

  • Anindya Sen
چکیده

In a recent study conducted for the Ontario Convenience Store Association I find evidence of significant average price differences in specific beer products between Ontario and Quebec, which I attribute to the near monopoly status enjoyed by The Beer Store (TBS). Back of the envelope calculations suggest the existence of significant profits enjoyed by TBS. In this paper, I study differences across specific brands. Employing data on 24 bottle (341 ml) packs collected from major Quebec grocery retailers over many weeks, my results suggest median differences ranging from roughly $3-$6, without accounting for variation in province specific commodity taxes. The need to account for commodity taxes is conditional on whether the beer is manufactured in Ontario. Using the conservative approach of applying a commodity tax correction to all products, I find that median estimates of price differences for a majority of domestic brands, reduces to $1.3-$3.3 However, data from Costco reveals large differences for major imported brands, in comparison to corresponding prices posted by TBS. Specifically, median estimates imply differences ranging from roughly $9-$11, after adjusting for deposit fees, sales taxes, and commodity taxes. A weighted average of price differences between domestic and imported brands suggests a 17% in beer prices between the two provinces. In tandem with the likely existence of significant economies of scale, my results indicate that TBS experiences significant retail profits, which under some assumptions, may be even larger than $700 million. The implications for government revenue are obvious. 1 The opinions expressed in this paper do not reflect the opinions of the Department of Economics at the University of Waterloo or the University of Waterloo. I did not accept any funding from the Ontario Convenience Store Association (OCSA) or from any other organization to write this paper. I take exclusive responsibility for all errors.

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تاریخ انتشار 2013