Supply Side Restrictions: A source of rent for the sellers

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Economy

The Ministry of Home Affairs has come up with the new executive order, which if comes into action will have stricter control over the production, distribution and consumption of alcohol. One of the proposed regulations of the government is to limit the number of liquor store to two in each ward of a municipality/sub- metropolitan city/ metropolitan city and one in each ward of a rural municipality. Apart from health damages, the government asserts that alcohol consumption is one of the major reasons behind rising domestic violence, rapes and sexual abuses. In that sense, government’s intention to regulate alcohol is fairly justified. But, the consequences of such action could be completely different from what is initially intended.

Limiting the number of liquor stores might not necessarily lead to reduction in alcohol consumption as people can always buy the same amount of alcohol as before from these stores. This will not affect the total demand and sales of alcohol but only reduce the number of sellers, giving these sellers power to extract rent from the consumers. They could just sell the alcohol at higher prices than the maximum retailer’s price as consumers will have no other options other than buying from them. Hence, as the consumption will see no significant reduction, the regulation will not have the desired effects, but only benefit these limited number of sellers.

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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