The Los Angeles Liquor Puzzle
By Bryan Caplan
There’s a lot less economic freedom in my state of origin, California, than in my state of residence, Virginia. According to the Pacific Research Institute’s rankings, the state of California comes in 49 out of 50th. Virginia comes in 3rd. As far as liquor is concerned, however, it looks like you can flip those rankings. In Virginia, you can buy beer and wine from the grocer, but hard liquor is only available at Virginia Alcoholic Beverage Control stores. (For their sickening propaganda, go here). In California, you can buy hard liquor almost everywhere.
If I didn’t know anything else about these states, I would predict that California’s grocery stores would dominate the liquor market. Why make a special trip to a seedy liquor store when you can buy tequila at CostCo during your weekly shopping?
But this prediction is way off. The blatant fact is that there are seedy liquor stores on virtually every commercial street corner in Los Angeles. People are free to buy their liquor in regular grocery stores, but for reasons I can’t grasp, grocery stores only seem to have a modest slice of the market.
Another way to think about this Los Angeles Liquor Puzzle: It seems like the Wal-Mart model should be working, but it’s not. The mom-and-pop liquor stores are thriving in the face of big(ger) box competition. This may be even weirder than the multiplicity of framing stores.
Perhaps my my economic introspection is handicapped because I don’t drink. Can anyone help me out? Are people who buy lots of hard liquor so myopic that they wait until they get the impulse to drink, then buy one night’s supply from the closest seller? Is Los Angeles special? Are California’s liquor stores destined for extinction is a few years?
But perhaps my problem just that I misunderstand the nuts and bolts of California liquor regulation. Are license fees and taxes somehow designed to favor all those seedy little corner liquor stores?