Gatekeeping and Rent-Seeking in the Three-Tier System

Part Five of a 10-Part Series on the Three-Tier System of Alcohol Regulation

This is the fifth of a 10-part series examining the Three-Tier System of alcohol distribution in the United States. It is my intent to examine the details, history, impact, politics, and alternatives to this uniquely American set of alcohol laws.

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If you open a dictionary and look up “Gatekeeping” and “Rent Seeking” you will find the same diagram of the Three-Tier System (TTS) of alcohol distribution. These two forms of economic and political corruption are baked into the regulations that define the TTS.

GATEKEEPING: The activity of trying to control who gets particular resources, power, or opportunities, and who does not.
-Cambridge Dictionary

RENT SEEKING: The act of growing one’s existing wealth without creating new wealth.[1] Rent-seeking activities have negative effects on the rest of society. Attempts at capture of regulatory agencies to gain a coercive monopoly can result in advantages for rent-seekers in a market while imposing disadvantages on their uncorrupt competitors.
-Wikipedia

The defining characteristic of a TTS of alcohol distribution is the requirement that producer located anywhere in the country may only see their products on a state’s retail shelves if they first sell to a wholesaler in the state where they want to market their product. The use of a middleman wholesaler is mandated by state law. However, wholesalers in the given state are not required to represent the producer who wants to sell their products at licensed retailers in the state. This is perhaps the most perfect definition of gatekeeping that you will find in any industry in the United States.

The practice prevents viable products from coming to markets in states. It deprives the state’s alcohol industry of economic growth by keeping products off shelves for no other reason than wholesalers don’t want to represent them.