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Alcohol price elasticities in control and license states in the US, 1982-1999
Stockholm University, Faculty of Social Sciences, Centre for Social Research on Alcohol and Drugs (SoRAD).
2005 (English)In: Addiction, ISSN 0965-2140, E-ISSN 1360-0443, Vol. 100, no 8, 1158-1165 p.Article in journal (Refereed) Published
Abstract [en]

AIM:

The demand for alcohol has been demonstrated repeatedly to be sensitive to price changes. However, estimated price elasticities vary by study region and over time. One explanation for these variations might be that different countries or parts of countries have had different alcohol control systems. The hypothesis addressed in this study was that a regulated market leads to higher transaction costs associated with purchasing alcohol, which in turn increases the full price of the beverages (the nominal cash price plus transaction costs). As a result, the cash price of alcohol represents a smaller part of the full price in a highly regulated market. Assuming that customers respond primarily to changes in full price, the demand for alcohol should be less sensitive to changes in cash price where regulation is stricter. This study examined whether variations in price elasticities were a function of the different regulatory systems in control and license states in the United States during the period 1982-99.

DATA AND METHODS:

Time-series cross-sectional analyses (in 50 states over 18 years) were conducted. Elasticities were estimated using a multiplicative model based upon first-differences of time-series within states. Disposable income and other socio-demographic variables were used as control variables. All data were obtained from archival sources.

FINDINGS:

The demand for spirits and beer were significantly more sensitive to price changes in license states than in control states. The estimated price elasticity for wine sales was also somewhat larger in license states, but not significantly so.

CONCLUSION:

The lower price elasticities for spirits and beer in the control states support the hypothesis that customers respond primarily to changes in the full price of alcohol.

Place, publisher, year, edition, pages
2005. Vol. 100, no 8, 1158-1165 p.
National Category
Social Work
Research subject
Social Work
Identifiers
URN: urn:nbn:se:su:diva-59171PubMedID: 16042646OAI: oai:DiVA.org:su-59171DiVA: diva2:425321
Available from: 2011-06-21 Created: 2011-06-21 Last updated: 2017-12-11Bibliographically approved
In thesis
1. Availability and Salels of Alcohol: Experiences from Canada and the U.S.
Open this publication in new window or tab >>Availability and Salels of Alcohol: Experiences from Canada and the U.S.
2005 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis consists of four papers, all of which focus on the effects of changes in the availability of alcoholic beverages on alcohol sales. The second paper also examines the effects of changes in the availability of alcohol on the incidence of fatal traffic crashes. The aim of the first paper was to evaluate the effects of the privatization of the retail sale of certain wines in Quebec in 1978, when grocery stores were allowed to sell domestically produced wine along with wine imported and bottled by the Liquor Board in Quebec. This right was extended in 1983 to cover imported wines bottled by privately owned manufacturers as well, and in 1984 larger grocery store chains were also allowed to sell such wine. Interrupted time-series analysis (ARIMA) with a quasi-experimental control area design was used in the study, and the study period was 1950-2000. Possible effects of the policy changes on alcohol sales were measured by means of intervention variables. Contrary to earlier studies regarding these policy changes, the results presented in this paper showed a significant and permanent effect of the policy change on wine sales in 1978. Wine sales increased by 10 percent, but the effect was not so large as to affect total sales. In 1983-1984 no immediate significant increase in wine sales was found. The retail sale of spirits, wine and beer was privatized in Alberta primarily between the end of the 1980s and the beginning of the 1990s. The effects of this privatization on alcohol sales and on the incidence of fatal traffic crashes were analyzed in the second paper. The design of the study was similar to that described in paper 1. According to the results of the study, privatization had a significant permanent effect on the sale of spirits, which increased by 12 percent. The effect was not large enough to affect total sales, however, and there was no significant effect on the number of fatal traffic crashes. The fact that sales continued to be monopolized on the wholesale level, along with the fact that alcohol sales were never permitted in grocery stores, may explain why the effects of privatization were not greater. The research questions addressed in the third paper were to what extent changes in economic and physical availability (i.e. the number of outlets) affected alcohol sales in four Canadian provinces (Alberta, British Columbia, Ontario and Quebec), and to what extent the possible effects varied among these provinces. ARIMA time-series analyses were used in this study, and the main study period was 1951-2000. Changes in economic availability in general, and in price in particular, had larger effects on sales than changes in the number of outlets. Among the beverages analyzed, the demand for spirits was most sensitive to changes in availability. There were some disparities among the provinces regarding the effect of price changes on sales, but not regarding the effects of changes in income or in the number of outlets. The demand for alcohol has repeatedly been shown to be sensitive to price changes, but the estimates vary by study region and over time. One explanation for these variations might be that different jurisdictions have had different alcohol control systems. The hypothesis addressed in the fourth paper was that a regulated market leads to higher transaction costs associated with purchases of alcohol, which in turn increases the full price of alcohol (i.e. the nominal cash price plus transaction costs). As a result, the cash price of alcohol represents a smaller part of the full price in a highly regulated market. Assuming that customers respond primarily to changes in the full price, the demand for alcohol should be less sensitive to changes in cash price in jurisdictions where regulation is stricter. In this study, the question examined was whether variations in price elasticities were a function of the different regulatory systems in control and license states in the U.S. during the period 1982-1999. (The control states had more heavily regulated alcohol markets than the license states.) Time-series cross-sectional analyses were conducted. The results showed that the demand for spirits and beer was significantly more sensitive to price changes in license states than in control states, which supports the hypothesis that customers respond primarily to changes in the full price of alcohol. The results presented in this thesis suggest that the relationship between changes in availability and alcohol sales is a complex one and that effects of changes in a specific kind of availability on sales and alcohol-related problems have to be seen in the context of other alcohol policy measures. For example, the effects of privatization in the two Canadian provinces were unexpectedly small, especially in Alberta. These results might be explained by the fact that the total alcohol market continued to be rather heavily regulated, especially on the wholesale distribution level. In addition, the results regarding price elasticities in the U.S. showed that the demand for alcohol was less sensitive to ordinary price changes in jurisdictions where alcohol sales were more restricted and where transaction costs were correspondingly greater.

Place, publisher, year, edition, pages
Stockholm: Sociologiska institutionen, 2005. 112 p.
National Category
Sociology
Identifiers
urn:nbn:se:su:diva-479 (URN)91-22-02122-1 (ISBN)
Public defence
2005-05-19, Aula Svea, Socialhögskolan, Sveaplan, Stockholm, 13:00
Opponent
Supervisors
Available from: 2005-04-28 Created: 2005-04-28 Last updated: 2013-07-08Bibliographically approved

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