Monopolies are not in the interest of consumers. That’s why almost every country in the world, including Canada, has a competition bureau of some kind to prevent and to break up monopolies.
Without getting into the nitty-gritty, a monopoly is formed when there a single party that holds a significant share of a particular market. Through the power of exclusivity, a monopolist is able to raise prices above what would be bargained through a free market, which robs consumers in the interest of making ungodly amounts of profit.
A perfect example of a monopoly would be the Liquor Control Board of Ontario, or the LCBO for short. Established in 1927 by the Lieutenant Governor, the LCBO (along with the Beer Store) holds a monopoly over liquor sales in Ontario.
This should come as a shock no one, but the LCBO rakes in billions in revenue. In 2013-14, revenues reached $5 billion. That tidy sum only figures to rise going forward, according to a 2013 report from the Ministry of Finance.
Given the LCBO’s utter dominance over the liquor market, multi-billion dollar revenues simply comes with the territory. With no competitors to manage price, the LCBO has free reign to hike up prices as they see fit.
Steep markups typify the LCBO’s greed. Supplier price and freight cost of spirits only accounts for 17 percent of retail price, according to a study by York University. That translates to a markup varying between 145 and 131 percent of total landed costs. And that’s before taxes, meaning the extra price does not necessarily translate to heftier governmental coffers. The LCBO robs its unwilling customers through superfluous and non-competitive premiums.
Astronomical prices aside, the LCBO also restricts the growth of small-scale wineries and microbreweries. Take the beer market, for example. The Beer Store (jointly owned by three mega-breweries Molson Coors, Anheuser-Busch, and Sapporo) accounts for 80 percent of market share with the other 20 percent belonging to the LCBO. Between the two giants, there’s no room for growth.
The solution would be to privatize liquor sales like Alberta did in 1993. The transition to privatization translated to positive outcomes for both businesses and its consumers.
After privatization, employment in this sector rose from 1,300 to 4,000, while the number of retail liquor outlets ballooned from 200 to 1,300.
Markups also dropped, which led to lower prices. A standard 26 oz. of Smirnoff that costs between $24 and $26 in Ontario can be purchased in certain stores Edmonton for $18, according to the Edmonton Journal.
By handing the right to individual businesses to sell liquor and allowing for the invisible hand of the marketplace to mould the market, a more equitable and fair market was established.
The gambit to all of this is tax revenue, which serves as the excuse for the LCBO’s existence. It’s repeatedly argued that the LCBO is essential to governmental funding. Ontario simply cannot afford to lose the $1.74 billion in income that the LCBO provided in 2013-14.
But that’s a short-sighted view. Tax revenue on a per-capita basis is actually higher in Alberta than it is Ontario, as found by a study in Maclean’s.
As was started from the outset, there’s a reason why countries have competition bureaus in place – to protect consumers from exploitive and wasteful monopolies. With that in mind, it’s high time to end the LCBO’s reign.
