Really Stupid Ideas #1

[drplokta]

First in an occasional series pointing out why ideas that are under discussion are stupid.

Today, we look at setting a minimum price per unit for alcohol. This is a stupid idea because it immediately turns (formerly) cheap booze into a massively profitable line for the supermarkets, with no price competition to worry about. This means that they will spend tens of millions promoting it, and sales may even increase.

The smart thing to do instead is to increase tax, bring tax levels more into line with alcohol content, and perhaps prohibit selling alcohol at below cost price as the government is proposing (although this, while not actively stupid, is very difficult since the government has no way to find out what cost price is).

Comments

[minnehaha.livejournal.com]

"Today, we look at setting a minimum price per unit for alcohol. This is a stupid idea because it immediately turns (formerly) cheap booze into a massively profitable line for the supermarkets, with no price competition to worry about. This means that they will spend tens of millions promoting it, and sales may even increase."

Depends on how the minimum price is set. If it's set by giving producers or distributors extra profit, it has the effect you outline. If it's a tax, then it doesn't.

[drplokta]

You can increase the average price with a tax, but you can't set a minimum, as it will still be possible for it to be sold well below cost as a loss-leader.