Public monopoly and economic efficiency
Subtitle: evidence from the Pennsylvania Liquor Control Board's entry decisions
By: Katja Seim, Joel Waldfogel
Contributors: Waldfogel, Joel, 1962-; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16258; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16258.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] :
Description: "While private monopolists are generally assumed to maximize profits, the goals of public enterprises are less well known.  Using the example of Pennsylvania's state liquor retailing monopoly, we use information on store location choices, prices, wholesale costs, and sales to uncover the goals implicit in its entry decisions.  Does it seek to maximize profits or welfare? We estimate a spatial model of demand for liquor that allows us to calculate counterfactual configurations of stores that maximize profit and welfare.  We find that welfare maximizing networks have roughly twice as many stores as would maximize profit.  Moreover, the actual network is much more similar in size and configuration to the welfare maximizing configuration.  An alternative to a state monopoly would be the common practice of regulated private entry.  While such regimes can give rise to inefficient location decisions, little is known about the size of the resulting inefficiencies.  Even for a given number of stores, a simple characterization of free entry with our model results in a store configuration that produces welfare losses of between 3 and 9% of revenue.  This is a third to half of the overall loss from unregulated free entry"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 9/21/2010.

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