Policy Summary: Indiana Proposal to Protect Alcohol Wholesalers Is Bad for Consumers

Published January 13, 2010

Indiana should be wary of plans before the legislature that would protect a few large alcohol wholesalers from free-market competition, as this proposal would hurt smaller businesses and consumers in the state. These restrictions would make it very difficult for smaller distributors to compete.

By making it more difficult for primary source providers and importers to contract out to the more cost-efficient and -effective wholesalers, the legislature would grant a de facto monopoly to a select few wholesalers. Indiana businesses should have the freedom to choose with whom they will do business. If they wish to switch business partners—which is sometimes necessary and perfectly appropriate in a competitive free market—the contracts they enter should give them the ability to do so, provide they act in good faith.

A policy brief by Americans for Tax Reform notes, “In general, monopoly protection laws require wine and distilled spirit suppliers (manufacturers and importers) to affirmatively prove that they possess ‘good cause’ to cancel, not renew or even modify a contract with wholesalers. These laws usually do not treat a supplier’s legitimate business reasons as ‘good cause,’ and always nullify contrary termination or expiration provisions of any agreement between the parties.”

In Illinois, “the Wirtz law” (named for liquor distributor William Wirtz) was overturned by the courts shortly after public outrage over its effects. As the Chicago Tribune explained, the law “made it nearly impossible for liquor suppliers to switch their business away from Wirtz. Wholesale liquor prices quickly soared far in excess of the tax hike. A federal judge eventually struck down the so-called Wirtz law as anti-competitive.”

Even with the best of intentions, such fiddling with the marketplace will ultimately drive smaller firms out of business and drive up costs for consumers. Legislators should instead focus on encouraging competition by reforming regulations, spurring new investment by lowering taxes, and upholding rather than undermining contracts.