Monday, March 12, 2007

Costco vs the 21st Amendment

Costco recently won in a lawsuit that was filed against the Washington State Liquor Control Board stating that their regulations violated the antitrust Sherman Act. Specifically under dispute were regulations that required both distributors and retailers to mark up prices at least 10 percent and post those prices in advance with the state; prevented distributors from offering volume discounts to retailers; and prohibited retailers from buying wine and beer on credit and storing those products at a central warehouse. The judge ultimately ruled that those laws create an environment hostile to competition and that the 21st Amendment is not a license to violate the Sherman Act.

Is this an attack by big corporate America on the small distributors or is it the distribution system protecting their monopoly? I'm sure the truth is somewhere in-between. Costco wants to enter a market space that it can not leverage it's purchasing power [which is what their customers are a custom to] and the distributors want to keep the playing field level since they would not be able to purchase in bulk like Costco can. I believe their is room for both the big warehouse like company that wants to buy large quantities of wine and beer and pass some of the savings along to their customer as well as the distributor/merchant system that provides variety and selection for the more knowledgeable, or in some cases less knowledgeable, consumer.

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