Magical Beer and Regulatory Rents

Productivity growth in the tap beer sector:

Behold, the Bottoms Up Draft Beer Dispensing System — which is now in place at the Verizon Center, says arena owner Ted Leonsis. The taps, the brainchild of GrinOn Industries, can reportedly allow one person to fill 44 pints of beer in one minute. It involves magnets, or something.

As a productivity optimist, what I’d normally tell you is that the ability to make serving beer a less labor-intensive occupation will ultimately benefit consumers. Initially, you’d see increased profits from the owners of beer-selling establishments. But that will merely attract additional capital into the beer sector, leading to more intense competition. Soon enough, the extra profit rate is competed away and the consumer surplus grows. In this particular case there are, however, a number of problems.

One is just that the NHL and NBA are semi-cartelized and it’s not like competing pro basketball teams are going to come to the city. But the other is that in the more general case of selling beer, there are extreme constraints to introducing new competition. It’s obvious that an additional bar in Adams-Morgan could be profitable. But it’s illegal to start a new bar in Adams-Morgan. It’s also illegal to start a new bar on 17th Street near Dupont Circle. Residents of Barracks Row are actually frightened that successful bars might open in their neighborhood. And, indeed, liquor license moratoria are quite frequent in the city. But even in places where opening a new bar isn’t just blanket illegal, you still face a lot of regulatory hurdles to doing so. Generally speaking, people are pretty hostile to the idea of a bar opening on their block and there are a lot of tools at their disposal to block it.

Whatever you think of that, it creates an anomalous situation whereby productivity enhancing innovations in the beer-serving sector simply lead to higher rents for existing license holders. Insofar as a city wants to restrict the availability of beer-selling establishments, the smarter way to do it is with laxer regulation plus higher taxes which would ensure that productivity growth ends up in the pockets of the city (allowing for lower taxes and better services) rather than in the hands of the license holders.