The Three-Tier System in USA

The three-tier system (TTS) began at the end of the Prohibition era in 1933. It’s a mandatory that establishes the model of distribution for alcoholic beverages in the United States. According to it, producers and importers must sell only to distributors or wholesalers, and those to retailers, who are the only ones that can sell to consumers. However, each state has its own legislation in this regard and in some states is allow for some entities to have part in two of the tiers, and at the same time, wineries are allow to sell wines on site to consumers.

There are many reasons that explain why this system was established. Originally, this system was set up to prevent vertical integrations and monopolies. It was also a way of keeping prices artificially high in order to promote temperance and avoid young people accessing to alcoholic beverages. Moreover, it was a form of fighting against mafia and its black market. Finally, it has been very useful for the states as a way of collecting more money through taxation.

In a globalize world the TTS looks old and out of phase. It’s a barrier of entrance for those who aren’t in the market as well as a competitive advantage for the domestic wine industry. I would also say that it’s anticompetitive and pushes the final price of wine high. Moreover, the idea of preventing vertical integrations seems good for those markets in which few competitors are involved, but not so good for a market in which there are thousands of players. Paradoxically, since 1985 the number of distributors and wholesalers has experienced a decrease which is causing a funnel in the chain value of TTS, and therefore, the growth of new oligopolies.

Fortunately, in November 2011 the State of Washington decided to dismantle the TTS. According to the modified law, retailers may purchase wine directly to producers bypassing distributors. This is very good news for retailers, producers and hopefully consumers, due to the fact that price of wine will be reduced significantly. I tend to think that this fact can push other states in the same path.

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