Price premiums

Say “price premium” to CEOs and watch their eyes light up. It’s the holy grail of business to charge a higher price and still have clients beat down your door.

Price premiums rarely come without some investment. Those who reach this point have usually perfected a system, hired better talent, employed new technology, improved customer service, etc. Consumers choose to pay more because the products and services are worth it.

Now contrast that wine sales in heavily regulated states. Minnesota only allows wine sales in liquor stores. Minnesotans pay a price premium for wine. It’s not because of the variety or the service or new technology in the store. They pay 17.5% more for wine than they should because they have to. An American Economics Group study uncovered the roots of this undesirable price premium.

Three elements of distribution and taxation create Minnesota’s significantly higher beverage prices. They are:

  1. The near-monopoly status (and monopoly profits) granted to a handful of wholesalers
  2. The restriction in the number and types of retail outlets
  3. The relatively high excise and sales taxes on alcoholic beverages

In combination, these three elements impose what has been called a monopoly “tax” on consumers in the form of higher prices for liquor, wine and beer.

Minnesota’s problems sound all too familiar.

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