FTC Staff Comment Before the Oregon Liquor Control Commission Concerning Review of its Rules

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Seattle Regional Office
2806 Federal Buildini
915 Second Avenue
Seattle, \\UhiJ1ilOrl 98174
(206) 442-4656
FEDERAL TRADE COMMISSION
V~8bO /4
COMMISSION 	f~UTHORiZEO
,'.
Ca!:'ole 	Cooke
R~les 	and 	Policy 	Manager
Oregon 	Liquor 	Control 	Commission
P. 	O. 	Box 	22297
Po!:'tland, 	Oregon 	97222
Dea!:' 	Ms. 	Cooke:
March 	7, 	1988
The 	Seattle 	Regional 	Office 	and 	the 	Bureaus 	of 	Competition,
Consumer 	Protection 	and 	Economics 	of 	the 	Federal 	Trade 	Commission
are 	pleased 	to 	have 	the 	opportuDity 	to 	comment 	on 	Section 	845-10-
210 	("Section 	210") 	of 	the 	rules 	of 	the 	O!:'egon 	Liquor 	Control
Commission. 1 	The 	Liquor 	Control 	Commission 	is 	in 	the 	process 	of
reviewing 	its 	rules 	to 	determine 	whether 	any 	of 	its 	requireme~ts
are 	unnecessary, 	unduly 	costly 	or 	needlessly 	burdensome. 2 	At
present, 	the 	Liquor 	Control 	Commission 	has 	requested 	~ublic
comments 	on 	Section 	210, 	which 	governs 	price 	posting. 	We
:commend 	the 	Liquor 	Control 	Commission's 	efforts 	to 	conduct 	this
review 	of 	its 	rules 	and 	are 	pleased 	to 	respond 	to 	the
Commission's 	request 	for 	publ~c comments 	on 	Section 	210. 	We 	hope
that 	our 	comments 	will 	be 	useful 	in 	examining 	the 	likely
competitive 	consequences 	of 	the 	current 	price 	posting
requirements. 	Our 	conclusion 	is 	that 	the 	deletion 	or 	substantial
restriction 	of 	the 	posting 	!:'equiremer.ts 	would 	materially 	increase
competi ti on 	and 	advance 	the,.i nte!:'es ts 	of 	Oregon 	cons umers.
Section 	210 	requires 	manu:actu!:'ers 	and 	wholesale!:'s 	0: 	bee!:'
and 	wine 	to 	post 	(~, 	file) 	their 	prices 	with 	the 	Liquor
Control 	Commission. 	Section 	210 	also 	restricts 	the 	ability 	of
1 	These 	comments 	represent 	the 	views 	of 	the 	staff 	of 	the
Federal 	Trade 	Commission. 	They 	co 	not 	necessarily 	represent 	the
views 	of 	the 	Com~ission or 	any 	i~divid~al Commissioner. 	The
Commission, 	however, 	has 	a~tho!:'ized the 	sub~ission of 	these
comments 	to 	you.
2 	Pe!:'iodic 	Rules 	Review 	Notice, 	Oregon 	Liquor 	Control
Commission 	(Oct. 	16, 	1967).
3 	Notice 	of 	Proposed 	Rulemaking 	Hearing, 	Oregon 	Liquor 	Control
Commission 	(Feb. 	1, 	1987).

manufacturers 	and 	wholesalers 	of 	beer 	and 	wine 	to 	change 	their
prices. 	For 	example, 	under 	Section 	210, 	manufacturers 	and
wholesalers 	cannot 	change 	their 	posted 	prices 	for 	ten 	days 	after
notifying 	the 	Commission 	of 	the 	proposed 	change. 	Fu~thermore,
with 	only 	limited 	exceptions, 	a 	posting 	of 	a 	lower 	price 	for 	beer
must 	remain 	in 	effect 	for 	90 	days 	after 	the 	effective 	date 	of
posting,.·while 	a 	similar 	wine 	posting 	must 	remain 	in:effect 	for
30 	days. 	Finally, 	all 	retail 	posted 	prices 	must 	be 	delivered
prices 	and 	must 	be 	the 	same 	for 	all 	retailers, 	regardless 	of
.variations 	in 	the 	costs 	of 	delivering 	products 	to 	different
- retailers. 	Penalties 	for 	violations 	of 	these 	restrictions 	may
include 	the 	cancellation 	or 	suspension 	of 	the 	licensee's 	license
or 	the 	imposition 	of 	monetary 	penalties. 4
These 	restrictions 	on 	the 	prices 	that 	manufacturers 	and
wholesalers 	of 	beer 	and 	wine 	may 	cha~ge 	for 	their 	products 	may
raise 	p=ices 	to 	consumers 	by 	deterring 	price 	reductions, 	raising
costs 	and 	impeding 	the 	development 	of 	efficient 	systems 	of
distribution. 	In 	addition, 	these 	restrictions 	may 	facilitate
collusion. 	The 	anticompetitive 	consequences 	of 	the 	~estrictions
may 	not 	be 	offset 	by 	countervailing 	benefits 	for 	consumers, 	nor
do 	the 	restrictions 	seem 	necessary 	to 	fulfill 	the 	goals 	of 	the
Oregon 	statutes. 	Instead, 	it 	is 	possible 	that 	the 	p~imary goal
of 	price 	posting 	-- 	deterring 	manufacturers 	and 	wholesalers 	from
providing 	financial 	assistance 	to 	particular 	retailers 5 	-- 	could
be 	achieved 	through 	recordkeeping 	or 	other 	less 	rest~ictive
requi rements.
I. 	Interest 	and 	Experience 	of 	the 	Federal 	Trade 	Com~ission
The 	Federal 	Trade 	Commission 	is 	empowered 	under 	Section 	5 	of
.' the 	Federal 	Trade 	Commission 	Act, 	15 	U. S. C. 	§45, 	to 	prevent
unfair 	methods 	of 	competition 	and 	unfair 	or 	deceptive 	acts 	or
practices 	in 	or 	affecting 	commerce. 	In 	addition 	to 	enforcing
Section 	5 	and 	other 	laws 	dealing 	with 	competition, 	the 	Commission
has 	f=equently 	authorized 	its 	staff 	to 	submit 	COmmer.ts 	on 	the
likely 	competitive 	consequences 	of 	federal, 	state 	and 	local
legislation 	or 	regulations. 	Several 	of 	these 	staff 	comments 	have
analyzed 	the 	competitive 	implications 	of 	p~oposed le;~slation or
regul ati ons 	governi ng 	the 	distribution 	of 	al coholi c 	beverages. 6
O:::e. 	Rev. 	Stat. 	§ 	471. 315 	(1985).
5 	~ 	Notice 	of 	Proposed 	Rulemaking, 	Oregon 	Liquor 	Control
Commission 	(Oct. 	16, 	1987). 	In 	these 	comments, 	we 	take 	no
position 	on 	the 	likely 	competitive 	effects 	of 	t~e statutory
prohib:tions 	of 	financial 	assistance.
6 	~, 	~, 	Comments 	of 	the 	Bureaus 	of 	Competition, 	Consume:::
Protection 	and 	Economics 	of 	the 	Federal 	Trade 	Commission 	on 	the
Maryland 	Wine 	Cooler 	Fair 	Dealing 	Act 	(Mar. 	11, 	1987)i 	Comments
of 	the 	Bureaus 	of 	Competition, 	Consumer 	Protection 	and 	Economics
(cor.ti nued ... )
2

I n 	anal yz i ng 	pa::ti cul ar 	s ta tutes 	or 	regul a ti ons, 	our 	goal 	is 	to
assess 	whether 	various 	restrictions 	impede 	competition 	or
increase 	costs 	without 	providing 	countervailing 	benefits 	to
consumers.
Restrictions 	on 	price 	are 	particularly 	appropri~te subjects
for 	competitive 	analysis 	since 	price 	has 	long 	been 	recognized 	as
lI'the 	central 	nervous 	s ys tern" 	of 	a 	free 	ma::ket 	economy. 7 	In
competitive 	markets, 	changes 	in 	price 	operate 	as 	signals 	to 	bring
:the 	output 	of 	producers 	(supply) 	into 	equilibrium 	with 	consumer
needs 	(demand). 	If, 	for 	exampl e, 	cons umers 	want 	to 	buy 	more 	of 	a
product 	than 	the 	market 	is 	currently 	providing, 	producers 	will
generally 	increase 	price 	in 	response 	to 	the 	high 	demand. 	Such
price 	increases 	will 	tend 	to 	reduce 	consumer 	purchases 	while
signalling 	the 	need 	for 	additional 	output. 	Conversely, 	if
produce::s 	have 	excess 	inventory, 	they 	will 	generally 	lower 	their
prices 	in 	order 	t~ stimulate 	consume:: 	purchases. 	Such 	price
reductions 	typically 	will 	also 	lead 	producers 	to 	decrease 	output.
Restrictions 	on 	price 	changes 	directly 	interfere 	with 	these
essential 	market 	signals 	and 	prevent 	the 	market 	from 	allocating
resources 	in 	a 	manner 	that 	maxi~izes consumer 	welfare. 	By
inefficiently 	allocating 	resources, 	such 	restrictions 	are 	likely
to 	result 	in 	higher 	prices, 	in:erior 	products, 	or 	reduced
services. 	Because 	of 	these 	likely 	adverse 	consequences, 	such
restrictions, 	when 	adopted 	by 	p::ivate 	competitors, 	would 	run 	the
risk 	of 	being 	summarily 	condemned 	under 	the 	antitrust 	laws. 8
6 ( ... conti Dued)
of 	the 	Federal 	Trade 	Commission 	on 	the 	District 	of 	Columbia 	Wine,
Beer 	and 	Spi ri ts 	Franchis e 	Act 	(Aug. 	29, 	1986) j 	and 	Peti ti on 	of
the 	Seattle 	Regional 	Office, 	Federal 	Trade 	Commission 	Before 	the
Washington 	State 	Liquor 	Control 	Board 	for 	Repeal 	of 	Rules
Affecting 	Price 	(Feb. 	17, 	1977).
7 	United 	States 	v. 	SQcQ:lV-Vacuum 	Oil 	Co., 	310 	U. S. 	150, 	224-
2 6, 	n. 5 9 	(1 94 °).
8 	If 	imposed 	by 	an 	agreement 	of 	competitors, 	pricing
restrictions 	of 	the 	type 	contained 	in 	Oregon's 	price 	posting
regulations 	would 	almost 	certainly 	violate 	~he 	antitrust 	laws.
~, 	~, 	Nille: 	v. 	Hedll,.;nC, 	8:3 	F.2d 	1344, 	1349 	(9th 	Cir.
1987), 	cert. 	denieC, 	56 	U. S. L. W. 	3568 	(Feb. 	23, 	1988) 	("If 	the
wholesale 	beer 	and 	wine 	distrib~tors had 	entered 	into 	a 	private
agreement 	to 	accomplish 	what 	is 	otherwise 	required 	by 	the 	Oregon
[price 	posting] 	reg~lations, there 	is 	no 	question 	that 	a 	~ 	~
violation 	of 	Section 	1 	of 	the 	Sherman 	Act 	would 	be 	found.")
In 	Miller, 	the 	Court 	of 	Appeals 	held 	that 	the 	Oregon 	price
posting 	requirements 	woulC 	be 	preempted 	by 	the 	Sherman 	Act 	unless
they 	are 	protected 	by 	the 	21st 	Amendment. 	The 	Court 	of 	Appeals
remanced 	the 	case 	to 	the 	District 	Court 	for 	further 	consideration
of 	the 	21st 	Amendment 	issues. 	In 	the 	meantime, 	the 	Liquor
(continued ... )
3

9
Like 	private 	restrictions 	on 	price, 	government-imposed
price 	restrictions 	may 	harm 	competition 	by 	cirectly 	interfering
with 	the 	price 	signals 	neeced 	for 	the 	market 	system 	to 	work. 	In
addition, 	government 	restrictions 	on 	price 	may 	raise 	the 	costs 	of
producing 	or 	distributing 	particular 	products. 	Finally,
government 	restrictions 	on 	price 	may 	enable 	private 	parties 	to
use 	the 	enforcement 	power 	of 	the 	state 	to 	strengthen 	private
price-fixing 	agreements. 	Government 	restrictions 	can 	be
effective 	in 	facilitating 	private 	price-fixing 	conspiracies 	if
violations 	of 	such 	restrictions 	subject 	noncomplying 	parties 	to
penalties 	that 	are 	more 	certain 	or 	severe 	than 	retaliation 	by
priva~e parties. 	For 	example, 	~any government 	agencies,
including 	the 	Liquor 	Control 	Commission, 	have 	the 	authority 	to
cancel 	or 	suspend 	a 	licensee's 	license 	or 	i~pose monetary
penal ti es 	for 	vi 01 ati ons 	of 	the 	agency's 	regul ati ons. 9
We 	recognize, 	of 	course, 	that 	government-imposed
restri~tions on 	price 	may 	be 	designed 	to 	achieve 	legitimate 	state
goals ... 0 	5i nee, 	however, 	government -i mpos eo 	res tri cti ons 	on
price 	may 	also 	adversely 	affect 	consumers 	by 	raising 	price 	and
wasting 	resources, 	it 	is 	useful 	to 	examine 	such 	restrictions
carefully 	to 	ensure 	that 	they 	do 	in 	fact 	achieve 	legitimate 	state
goals 	without 	unnecessarily 	restricting 	competition.
8 ( ... conti nued)
Control 	Commission 	is 	reviewing 	its 	price 	posting 	requirements
~(several of 	which 	are 	at 	issue 	in 	Kille;) 	to 	determine 	whether
these 	requirements 	are 	unduly 	burdensome 	or 	unnecessary 	to
fulfill 	the 	relevant 	statutory 	goals.
Tne 	Oregon 	Liquor 	Control 	Commission 	has 	the 	authority 	to
impose 	such 	penalties 	if 	it 	finds 	or 	has 	reasonable 	srounds 	to
believe 	that 	the 	licensee 	has 	violated 	any 	cf 	its 	regulations,
i ncl udi. ng 	the 	p=i ce 	pos ti ng 	requi reme~ts. 	O=e. 	Rev. 	S"':.a t . .~
§ 	~71. 315 	(1985).
10 	For 	example, 	government-imposed 	restrictions 	on 	price 	may
be 	designed 	to 	restrain 	monopoly 	pricing. 	In 	addition, 	we
recog~ize 	the 	important 	role 	played 	by 	the 	state 	in 	promoting
the 	well 	being 	of 	its 	citizens 	and 	do 	not 	contend 	that 	a 	state
should 	not 	regulate 	the 	sale 	of 	alco~olic beverages 	to 	promote
temperance. 	There 	may 	be, 	however, 	means 	to 	ac~omplish this 	goal
that 	do 	not 	limit 	the 	benefits 	of 	competition. 	For 	example, 	one
alternative 	method 	of 	promoting 	temperance 	that 	might 	not 	have 	an
adverse 	effect 	on 	competition 	would 	involve 	using 	tax 	revenues
from 	the 	sale 	of 	alcoholic 	beverages 	for 	educational 	programs,
such 	as 	alcohol 	abuse 	prevention 	prog=arns.

II. 	CQmpetitive 	bnalvsis 	of 	the 	Frice 	Festive 	Requireme~ts
of 	SectiQn 	210
In 	this 	sectiQn, 	we 	first 	briefly 	review 	the 	CQntent 	and
goals 	of 	the 	price 	posting 	requirements 	set 	forth 	in-~ection 210.
We 	then 	discuss 	four 	specific 	aspects 	Qf 	SectiQn 	210 	that 	may
harm 	competitiQn 	by 	interfering 	with 	pricing 	signals, 	increasing
~osts, 	Qr 	strengthening 	private 	agreements 	on 	price. 	In 	Section
~II, 	we 	discuss 	alternate 	means 	of 	achieving 	the 	goals 	of 	the
·price 	posting 	requirements 	while 	reducing 	the 	potential 	for
cQmpetitive 	inju~y.
A. 	Frice 	Fostine 	Requirements 	Of 	Section 	210
As 	indicated 	earlier, 	Section 	210 	requires
manufacturers 	and 	wholesale~s o~ 	beer 	and 	wine 	to 	post 	their
prices 	with 	the 	Liquor 	Control 	Commission. 	These 	price 	postings
are 	available 	for 	public 	inspec~ion. 	Manufactu~e~s and
wholesalers 	may 	change 	their 	pQs~ed prices 	by 	filing 	amended
p~ice pQstings. 	However, 	new 	or 	revised 	p~ice pQstings 	cannQt 	gQ
intQ 	effect 	until 	ten 	days 	afte~ posting. 	Furthermc~e, 	beer
pQstings 	that 	decrease 	price 	must 	generally 	~emain in 	effect 	fo~
90 	days, 	while 	wine 	pQstings 	that 	decrease 	price 	must 	remain 	in
effect 	for 	30 	days. 	~anufacture~s or 	wholesalers 	may 	post
different 	prices 	for 	wholesale 	sales 	and 	fQr 	retail 	sales, 	but
must 	charge 	the 	same 	price 	to 	all 	~hclesalers and 	the 	same 	price
tQ 	all 	retailers. 	FQr 	retail 	sales, 	the 	posted 	price 	must 	be 	the
del i vered 	pri ceo
The 	price 	posting 	requirements 	set 	fQrth 	in 	SectiQn 	210 	are
~neither mandated 	nor 	specifically 	authQrized 	by 	statute.
Instead, 	it 	is 	Qur 	understanding 	that 	these 	requireme~ts were
adopted 	in 	Qrder 	to 	make 	it 	difficult 	for 	manufacturers 	and
wholes a1 ers 	tQ 	ci rcumvent 	Secti o~s 	471. 415 	and 	471. 4 E5 	Qf 	the
O=egon 	statutes. 11 	Section 	471. 425 	prQhibits 	retailers 	from
receiving 	"assistance 	financially, 	0= 	in 	any 	other 	material
manner" 	frQm 	wholesalers 	o~ manu:actu=ers, 	except 	as 	permitted 	in
Section 	471. 465. 	Section 	471. 465 	pro::'itits 	ma:-n.:facturers 	o~
wholesalers 	frQm 	supplying 	a~y 	retailer 	with 	substantial
gratuities; 	finar;ces{ 	money, 	crec.it, 	c.isCQunts 	Qr 	rebates;
fixtu:res, 	furniture 	Qr 	:urnishinss; 	o~ 	equipment 	Q= 	services
(Qther 	than 	specifically 	enumerated 	services, 	such 	as 	stQck
inspections, 	that 	are 	furnished 	to 	all 	=etailers 	without
discriminatiQn). 	It 	is 	our 	understancing 	'that 	these 	statuto=y
prQvisions 	were 	designed 	tQ 	ensu~e that 	~anufacturers and
11 	~ 	NQtice 	c: 	P~oposed Rulemaking 	Hea=ing, 	OregQn 	Liquor
Control 	CQmmissiQn 	(Feb. 	1, 	1988).

wholesalers 	do 	not 	discriminate 	among 	retailers 	by 	giving 	price
or 	nonpri ce 	pre ferences 	to 	favored 	retail ers. 12
The 	price 	posting 	requirements 	set 	forth 	in 	Section 	210 	are
intended 	to 	make 	it 	more 	difficult 	for 	manufacturers 	and
wholesalers 	to 	circumvent 	these 	statutory 	prohibitio~~ on 	price
discrimination. 13 	For 	example, 	the 	30 	and 	90 	day 	waiting 	periods
make 	it 	difficult 	for 	sellers 	to 	change 	their 	prices 	so 	quickly
. that 	only 	favored 	retailers 	learn 	of 	the 	price 	reductions 	in 	time
to 	take 	advantage 	of 	the 	lower 	pri ces. 	The 	ten 	day 	wai ti ng
period 	before 	posted 	prices 	can 	go 	into 	effect, 	combined 	with 	the
public 	availability 	of 	posted 	prices, 	may 	further 	ensure 	that
retailers, 	as 	well 	as 	the 	Commission, 	have 	ample 	notice 	of 	the
availability 	and 	effective 	dates 	of 	low 	prices. 14 	Finally, 	the
requirement 	that 	there 	be 	only 	one 	price 	-- 	a 	delivered 	price
to 	all 	retailers 	may 	make 	it 	easier 	for 	retailers 	and 	the'
Commission 	to 	detect 	possible 	price 	discriminations.
These 	restrictions 	on 	price 	are, 	however, 	also 	:ikely 	to
reduce 	competition 	among 	manufacturers 	and 	wholesalers 	and 	to
lead 	to 	higher 	retail 	prices 	for 	beer 	and 	wine. 	In 	the 	next
section, 	we 	discuss 	several 	aspects 	of 	Section 	210 	that 	are
particularly 	likely 	to 	harm 	competition.
B. 	CQmpetitive 	Effects 	Qf 	Particular 	RestrictiQns 	i~
Section 	210
The 	three 	restrictions 	set 	fQrth 	in 	SectiQn 	210 	that
are 	mQst 	likely 	tQ 	harm 	CQnsumers 	are 	the 	req~irement that 	price
pQstings 	that 	decrease 	price 	must 	remain 	in 	effect 	fQr 	30 	days
..
12 	These 	provisions 	may 	alsQ 	help 	ensure 	that 	man~facturers
and 	whQlesalers 	do 	nQt 	use 	indirect 	forms 	of 	Qwnersr.ip 	tQ
circumvent 	the 	statutQry 	prQhibition 	on 	the 	direct 	Qw~ership of
retailers 	by 	manufacturers 	and 	whQlesalers. 	Prohi::'itiQ~s on
direct 	ownership 	are 	set 	for~h in 	Or. 	Rev. 	Stat. 	§ 	471. 455 	(1985)
and 	Or. 	Admin. 	R. 	§845-10-128 	(1987).
13 	By 	making 	it 	more 	difficult 	for 	manufacturers 	a~d
whQlesalers 	tQ 	gra~t price 	preferences, 	these 	provisiQns 	may
increase 	the 	incentive 	for 	manufact~rers a~d whQlesalers 	to 	grant
nQnprice 	preferences. 	However, 	ether 	provisiQns 	Qf 	the
CQmmissiQn' s 	rules 	are 	designed 	to 	prevent 	such 	grants 	Qf
nQnprice 	preferences. 	~,~, 	Or. 	Admin. 	R. 	§ 	845-10-121
thrQugh 	845-10-127 	(1987).
14 	In 	the 	past, 	the 	Liquor 	Control 	Com~issi~~ also 	used 	this
ten 	day 	periQd 	to 	review 	price 	postings 	for 	possible 	violations
of 	the 	30 	and 	90 	day 	waiti~g periods 	or 	other 	Commission
regulatio~s. 	It 	is 	our 	understandi~g, however, 	that 	the
Commission 	no 	lQnger 	performs 	this 	preliminary 	review 	and 	that
the 	ten 	day 	waiting 	periQd 	is 	therefore 	no 	longer 	needed 	fQr 	this
purpQse.
6

for 	wine 	and 	90 	days 	for 	beer; 	the 	requirement 	that 	posted 	prices
cannot 	go 	into 	effect 	until 	ten 	days 	after 	posting; 	and 	the
requirement 	that 	manufacturers 	and 	wholesalers 	post 	only
delivered 	prices 	to 	retailers. 	The 	requirement 	that 	posted
prices 	be 	made 	publicly 	available 	may 	also 	cause 	competitive
injury 	under 	sor.~ circumstances. 	In 	this 	section, 	we. discuss
each 	of 	these 	restrictions 	in 	turn.
1. 	Requi rement 	That 	¥,'i ne 	and 	Beer 	Pos ti ngs 	That
Decrease 	Price 	Remain 	In 	Effect 	for 	30 	anO 	90
Days, 	Respectively
The 	requirement 	that 	wine 	and 	beer 	postings 	that 	decrease
price 	remain 	in 	effect 	for 	30 	and 	90 	days, 	respectively, 	is
likely 	to 	harm 	competition 	by 	prohibiting 	short-term 	price
reductions, 	by 	increasing 	the 	risks 	associated 	with 	any 	other
price 	reductions, 	and 	by 	elevating 	the 	average 	price 	of 	beer 	and
wine. 15 	In 	addition, 	by 	deterring 	industry 	members 	from
initiating 	price 	cuts, 	this 	requirement 	may 	promote 	~0llusion in
highly 	concentrated 	markets.
In 	effect, 	this 	requirement 	prohibits 	price 	reductions 	of
less 	than 	30 	days 	for 	wine 	and 	90 	days 	for 	beer. 	Such 	short-term
price 	reductions 	are, 	however, 	cften 	essential 	to 	the 	efficient
functioning 	of 	the 	marketplace. 	For 	example, 	manufacturers 	or
wholesalers 	may 	wish 	to 	reduce 	prices 	for 	short 	periods 	in 	order
to 	quickly 	sell 	off 	excess 	inventory 	of 	products, 	such 	as 	beer,
that 	would 	otherwise 	reach 	their 	expiration 	date 	and 	need 	to 	be
discarded. 16 	Manufacturers 	or 	wholesalers 	rr.ay 	similarly 	wish 	to
implement 	short-term 	price 	reductions 	to 	reflect 	temporary 	cost
reductions, 	to 	promote 	their 	products, 	or 	to 	conduct 	market
'. tes ts. 	I n 	many 	ins tances, 	pri ce 	reducti ons 	of 	thes e 	types 	coul d
not 	be 	jcstified 	for 	30 	or 	90 	day 	periods. 	Prohibiting 	shorter-
term 	price 	reductions 	would 	therefore 	eliminate 	these 	price
reductions 	and 	result 	in 	consumers 	paying 	higher 	prices 	for 	beer
and 	wine 	than 	they 	would 	if 	price 	were 	free 	to 	vary. 	Moreover,
15 	In 	this 	section, 	we 	identify 	the 	~ost likely 	consequences
of 	the 	30 	and 	90 	c.ay 	waiting 	periods. 	As 	c.iscussed 	above,
however, 	the 	esser-tial 	problem ~:th pricing 	restrictions 	of 	this
type 	is 	that 	they 	c.istort 	the 	price 	signals 	needed 	=or 	the 	market
to 	function 	efficiently. 	The 	specific 	consequences 	identifiec. 	in
these 	sections 	should 	not 	therefcre 	be 	viewed 	as 	a 	conprehensive
list 	of 	potentially 	negative 	effects 	on 	efficiency.
16 	~ 	Comments 	of 	Miller 	Brewing 	Company 	Concerning 	the 	Time
Limit 	for 	"Post-Offs" 	under 	OAR 	845-10-210 	(Dec. 	15, 	1987). 	In
its 	comments, 	Miller 	also 	notes 	that 	even 	if 	wholesalers 	post 	a
lower 	price 	in 	order 	to 	clear 	excess 	inventory, 	the 	90 	day
waiting 	period 	allows 	retailers 	to 	wait 	to 	place 	their 	orders
unti 1 	the 	overs toc}. 	inventory 	has 	pas s ed 	its 	s hel f 	date. 	As 	a
resclt, 	distributors 	may 	be 	forced 	to 	destroy 	thousands 	of
dollars 	in 	unmarketable 	beer.
7

prohibiting 	such 	price 	reductions 	may 	result 	in 	the 	destruction
of 	excess 	inventory 	or 	the 	failure 	to 	conduct 	valuable 	market
tests 	or 	promotional 	activities.
In 	addition 	to 	banning 	short-term 	price 	reductions 	of 	these
types, 	the 	30 	and 	90 	waiting 	periods 	are 	likely 	to 	de~er other
price 	reductions 	by 	greatly 	increasing 	the 	attendant 	risks. 	In
effect, 	these 	wai~ing periods 	commit 	sellers 	to 	reduced 	prices
for 	extended 	periods 	regardless 	of 	subsequent 	changes 	in 	market
conditions. 	In 	many 	instances, 	it 	may 	be 	difficult 	to 	forecast
supply 	and 	demand 	concitions 	for 	such 	extended 	periods. 	The
demand 	for 	beer, 	in 	particular, 	may 	vary 	considerably 	over 	a
holiday 	season, 	depending 	on 	the 	weather. 	Furthermore,
unexpected 	changes 	in 	supply 	conditions, 	such 	as 	increases 	in 	raw
material 	or 	transportation 	costs, 	could 	injure 	sellers 	that 	had
posted 	lower 	prices 	that 	were 	binding 	for 	30 	or 	90 	days.
Miscalculations 	of 	the 	extent 	to 	which 	price 	reductions 	would
spur 	demand 	could 	also 	cause 	significant 	financial 	injury 	to
manu fact urers 	that 	pos ted 	pri ce 	reducti ons, 17 	By 	i ncreas i ng 	the
risks 	of 	posting 	price 	reductions, 	the 	waiting 	periods 	are 	likely
to 	deter 	price 	reduc!ions 	of 	all 	types, 	resulting 	in 	higher
prices 	to 	consumers ... 8
Finally, 	the 	requirement 	that 	price 	reductions 	s~ay in
effect 	for 	30 	or 	90 	days 	may 	promote 	collusion 	among 	wholesalers
or 	among 	retailers 	by 	deterring 	industry 	members 	from 	initiating
price 	reductions 	that 	would 	undermine 	a 	collusive 	price. 	In
general, 	collusive 	pricing 	agreements 	are 	most 	likely 	to 	break
down 	as 	a 	result 	of 	price 	cutting 	by 	an 	industry 	member 	who
anticipates 	that 	it 	can 	make 	higher 	profits 	by 	reducing 	price 	a~o
increasing 	sales. 	However, 	the 	30 	and 	90 	day 	waiting 	periods
:tend 	to 	reduce 	the 	likelihood 	that 	a 	price 	cutting 	strategy 	will
be 	successful.
17 	If, 	for 	examp~e, 	a 	reduction 	in 	price 	did 	not 	increase
demand 	sig~ificantly, keeping 	that 	price 	in 	effect 	could 	cause
significant 	losses 	for 	sellers 	who 	had 	coun~ed on 	increased
sales 	to 	offset 	the 	decreased 	per 	~nit price. 	Similarly,
unexpected 	increases 	in 	demand 	mig~t force 	sellers 	to 	sell
regular, 	rather 	than 	excess, 	inver.~ory at 	recuced 	prices 	or 	to
quickly 	increase 	supply, 	possibly 	at 	substa~tially increased
costs.
18 	Furthermore, 	Section 	210 	will 	tend 	to 	raise 	prices, 	on
average, 	by 	imposing 	30 	or 	90 	day 	waiting 	periods 	only 	on 	price
reductions. 	Under 	this 	section, 	s~ppliers may 	raise 	their 	prices
as 	frequently 	as 	they 	choose, 	subject 	only 	~o the 	ten 	day 	advar.ce
notice 	provision 	(discussed 	below), 	Suppliers 	that 	lower 	price,
on 	the 	other 	hand, 	are 	locked 	into 	the 	lower 	posted 	prices 	for
30 	or 	90 	days, 	regardless 	of 	subsequent 	changes 	in 	market
concitions. 	By 	penalizing 	price 	reductions 	but 	permitting
prices 	to 	rise 	relatively 	freely, 	Section 	210 	will 	tend 	to 	cause
the 	average 	price 	level 	to 	be 	higher 	than 	it 	would 	otherwise 	be.
8

Facilitating 	collusion 	may 	be 	a 	concern 	in 	beer
distribution, 	in 	part 	because 	Ore90n's 	statutes 	require
manufacturers 	to 	establish 	exclusive 	territories 	for 	their
wholesalers. 19 	Furthermore, 	beer 	wholesalers 	often 	serve 	as 	the
exclusive 	distributor 	for 	more 	than 	one 	manufacturer;_~ 	As 	a
result, 	only 	a 	few 	beer wholesalers 	operate 	in 	each 	geographic
territory. 	Such 	highly 	concentrated 	markets 	may 	be 	conducive 	to
~xplicit or 	tacit 	agreements 	on 	price. 20
Should 	such 	agreements 	occur, 	the 	30 	and 	90 	day 	waiting
periods 	may 	reduce 	the 	likelihood 	that 	the 	collusive 	price 	will
be 	undermined 	by 	price 	cutting. 	As 	indicated 	earlier, 	the
waiting 	periods 	prohibit 	short-term 	price 	reductions 	and 	increase
the 	attendant 	risks 	of 	all 	price 	reductions. 	In 	the 	context 	of
collusion, 	these 	waiting 	periods 	could 	also 	increase 	a 	price
cutter's 	exposure 	to 	retaliatory 	pricing 	by 	forcing 	the 	price
cutter 	to 	keep 	a 	price 	cut 	in 	effect 	for 	an 	extended 	period 	even
if, 	after 	retaliation, 	it 	is 	no 	longer 	profitable. 	':'he 	original
price 	cutter 	may 	be 	particularly 	vulnerable 	to 	retaliation 	if
Section 	210 	is 	interpreted 	to 	prohibit 	the 	original 	price 	cutter
from 	further 	lowering 	its 	price 	during 	the 	30 	or 	90 	day 	waiting
period 	in 	response 	to 	retaliatory 	price 	cuts 	by 	its
.;-' t 	21	c ompe d. 	ors.
19 	Under 	Oregon 	state 	law, 	"intrabrand" 	cOr.".petition 	(~,
competition 	within 	the 	same 	geographic 	territory 	from
wholesalers 	of 	the 	same 	brand 	of 	beer) 	is 	prohibited. 	The 	only
permissible 	type 	of 	competition 	is 	competition 	from 	competing
brands 	(" i nterbrand" 	competi ti on).
20 	The 	ability 	of 	beer 	wholesalers 	to 	collude 	successfully 	on
price 	may 	also 	be 	enhanced 	by 	the 	fact 	that 	the 	sale 	of 	distilled
liquor, 	a 	possible 	substitute 	for 	beer, 	is 	a 	state-controlled
monopoly. 	In 	Oregon, 	the 	state 	is 	the 	only 	wholesaler 	of
distilled 	liquor 	and 	sets 	all 	retail 	prices 	for 	these 	products.
Hence, 	retailers 	of 	cistilled 	liquor 	are 	not 	allowed 	to 	price
competitively. 	Even 	if 	cistilled 	liquor 	is 	viewed 	as 	a 	clos~
substitute 	for 	beer, 	therefore, 	competitive 	pressures 	from
retailers 	of 	cistilled 	liquor 	cannot 	be 	coun~ed on 	to 	restrain
beer 	wholesalers 	an~ retailers 	fro~ raising 	their 	prices 	above
the 	competitive 	level.
21 	A literal 	reading 	of 	Section 	210 	appears 	to 	support 	this
interpretation. 	Furthermore, 	it 	is 	our 	understanding 	that 	the
Liquor 	Control 	Commission 	has 	sorn~times interpreted 	Section 	210
in 	this 	manner. 	Under 	this 	reading, 	if 	cor.petitors 	post 	a 	price
under 	the 	price 	posted 	by 	the 	original 	price 	cutter, 	the 	original
price 	cutter 	will 	be 	unable 	to 	meet 	the 	competitors' 	prices 	for
the 	remainder 	of 	the 	30 	or 	90 	day 	waiting 	period. 	Such 	a 	policy
would 	place 	the 	original 	price 	cutter 	in 	a 	very 	unfavorable
market 	position 	and 	would 	be 	likely 	to 	deter 	industry 	members
from 	being 	the 	first 	to 	undercut 	a 	collusive 	price.

In 	addition, 	the 	30 	and 	90 	day 	waiting 	periods 	reduce 	the
incentives 	for 	industry 	members 	to 	undercut 	a 	collusive 	price 	by
decreasing 	the 	likelihood 	that 	retailers 	will 	immediately 	.
purchase 	large 	quantities 	of 	goods 	from 	the 	orig~nal price
cutter. 	Since 	retailers 	know 	that 	the 	price 	cutter'~ prices 	are
guaranteed 	for 	a 	30 	or 	90 	day 	period, 	retailers 	may 	elect 	instead
to 	wait 	and 	see 	whether 	sUD~liers of 	competing 	brands 	will 	meet
or 	beat 	the 	reduced 	price. 2 	Retailers 	may 	then 	choose 	to
:purchase 	reduced-price 	products 	from 	other 	industry 	members 	who
meet 	or 	beat 	the 	initial 	price 	cut, 	rather 	than 	from 	the 	original
price 	cutter. 	Under 	these 	co~d~tions, the 	initial 	price 	cutter
may 	receive 	little 	or 	no 	benefit 	from 	its 	price 	cutting 	strategy.
For 	these 	reasons, 	the 	waiting 	periods 	are 	likely 	to 	reduce
significantly 	the 	expected 	benefits 	of 	price 	cutting, 	thereby
deterring 	industry 	members 	from 	initiating 	price 	cuts 	and
increasing 	the 	likelihood 	that 	collusion 	will 	be 	successful. 23
2. 	Ten 	Day 	wc:tino 	Period 	Before 	Posted 	P;ices 	Go
Ir.;o 	Effect
The 	ten 	day 	waiting 	period 	before 	posted 	prices 	go 	into
effect 	may 	harm 	competition 	both 	by 	delaying 	price 	changes 	and 	by
giving 	ten 	days 	notice 	of 	proposed 	price 	changes 	to 	competitors.
The 	requirement 	that 	sellers 	refrain 	from 	changing 	their
prices 	for 	ten 	cays 	after 	posting 	a 	new price 	prevents 	sellers
from 	responding 	quickly 	to 	short-term 	shifts 	in 	supply 	or
demand. 	Such 	delays 	prevent 	the 	market 	from 	using 	price 	signals
. 	to 	adjust 	the 	output 	of 	producers 	and 	the 	purchases 	of 	consumers
in 	a 	timely 	and 	efficient 	manner. 	For 	example, 	in 	an
unrestricted 	market, 	beer 	producers 	with 	excess 	inventory 	might
be 	inclined 	to 	reduce 	their 	prices 	quickly, 	thereby 	increasing
consumer 	purchases. 	The 	ten 	day 	waiting 	period, 	however,
prohibits 	producers 	from 	impleme~ting these 	price 	changes
immediately 	and 	hence 	preven~s the 	market 	from 	making 	the
appropriate 	acjustments 	for 	at 	least 	ten 	days. 24
22 	Without 	these 	wai~ing pe=iods, 	retaile~s may 	o=ce= 	q~ickly
from 	the 	initial 	price 	cutter 	because 	they 	will 	not 	know 	how 	long
the 	price 	cut 	will 	remain 	in 	effect, 	or 	whether 	or 	when 	the 	price
cut 	will 	be 	matched.
23 	The 	disparity 	between 	the 	30 	day 	waiting 	period 	for 	wine
and 	the 	90 	day 	waiting 	period 	for 	beer 	is 	also 	of 	competitive
concern 	because 	it 	may 	place 	sellers 	of 	beer 	at 	a 	competitive
disadvantage 	vis-a-,is 	sellers 	of 	wine. 	We 	are 	not 	aware 	of 	ar.y
economic 	basis 	for 	this 	distinction.
24 	The 	ten 	day 	waiting 	period 	may 	cause 	some 	sellers 	to
refrain 	from 	changing 	their 	prices 	at 	all. 	Since, 	for 	example,
(continued ...
10

The 	ten 	day 	waiting 	period 	should 	not, 	moreover, 	be 	viewed
as 	merely 	a 	one-time, 	temporary 	problem 	that 	will 	be 	resolved 	at
the 	end 	of 	ten 	days. 	To 	the 	contrary, 	if 	market 	conditions
change 	again 	during 	the 	ten 	day 	period, 	the 	price 	posted 	at 	the
beginning 	of 	that 	period 	will 	be 	outdated 	by 	the 	tim& 	it 	goes
into 	effect. 25 	Accordingly, 	if 	beer 	and 	wine 	markets 	are
frequently 	subject 	to 	significant 	changes 	in 	market 	conditions
that 	are 	not 	fully 	predictable, 26 	the 	ten 	day 	weiting 	period 	may
:cause 	long-term, 	systemic 	distortions 	of 	the 	pricing 	system. 27
Indeed, 	if 	change 	is 	frequent 	enough, 	market 	prices 	may 	rarely
reflect 	current 	market 	conditions, 	causing 	persistent 	resource
misallocation 	and 	consumer 	injury.
The 	ten 	day 	waiting 	period 	may 	also 	harm 	competition 	by
giving 	competitors 	ten 	days 	notice 	of 	prospective 	price 	changes.
24 ( ... continued)
a 	supplier 	may 	not 	know 	whether 	excess 	supply 	will 	remain 	at 	the
end 	of 	the 	ten 	day 	waiting 	period, 	the 	supplier 	may 	not 	want 	to
post 	a 	price 	reduction 	that 	might 	not 	be 	warranted 	by 	the 	time
it 	goes 	into 	effect. 	Even 	if 	the 	Liquor 	Control 	Commission
perr.~ts suppliers 	to 	withdraw 	posted 	price 	reductions 	during 	the
ten 	day 	waiting 	period, 	such 	withdrawals 	may 	not 	be 	practical
from 	a 	business 	perspective 	if 	retailers 	have 	already 	taken 	the
posted 	reductions 	into 	account 	in 	planning 	orders 	and 	promotions.
25 	If 	sellers 	were 	able 	to 	forecast 	supply 	and 	demand
conditions 	ten 	days 	in 	advance, 	the 	ten 	day 	waiting 	period 	would
not 	be 	a 	problem, 	for 	producers 	would 	simply 	file 	all 	price
:changes 	ten 	days 	in 	advance 	of 	any 	significant 	shift 	in 	supply 	or
demand. 	In 	most 	markets, 	however, 	changes 	in 	supply 	and 	demand
are 	not 	so 	predictable. 	Indeed, 	in 	most 	markets, 	producers
react 	to 	such 	changes 	after 	the 	changes 	have 	occurred, 	rather
than 	ten 	days 	in 	advance.
26 	Such 	market 	changes 	would, 	for 	example, 	include 	inver-tory
ex c e sse 5 	0 r 	s h 0 rtf all s 	a": 	the 	en:' 	c flo:1 9 	woe eke n c s , 	h 0 1 i cay
seasons 	or 	major 	sports 	events. 	Excess 	inventory 	may 	also 	arise
if 	competitors 	have 	conducted 	particu:arly 	successf~l product
promotions 	or 	if 	a 	firm's 	own 	pro~otions have 	been 	less
successful 	tha:1 	anticipated.
27 	In 	some 	instances, 	even 	the 	short-term 	effect 	of 	the 	ten
day 	waiting 	period 	may 	be 	significant. 	For 	example, 	if 	at 	the
end 	of 	a 	holiday 	season, 	a 	manufacturer 	or 	wholesaler 	has 	a
substantial 	excess 	inventory 	of 	bee~ 	whose 	shelf 	life 	is 	about
to 	expire, 	~he 	ten 	day 	waiting 	period 	prohibits 	the 	manufacturer
or wholesaler 	from 	dropping 	its 	price 	immediately 	in 	order 	to
sell 	the 	beer 	before 	i":s 	expiration 	date. 	If 	the 	time 	remaining
after 	the ten 	day 	waiting 	period 	has 	expired 	is 	not 	sufficient 	to
sell 	off 	the 	excess 	inventory, 	some 	or 	a:l 	of 	the 	beer 	may 	have
to 	be 	des troyed.
1 1

In 	highly 	concentrated 	mark2ts, 	such 	notice 	may 	promote 	collusion
by 	reducing 	the 	incentive 	for 	any 	party 	to 	a 	price-fixing
agreement 	to 	be 	the 	first 	to 	cut 	prices. 	In 	general, 	the
greatest 	gains 	from 	price 	cutting 	are 	likely 	to 	occur 	betweeh 	the
time 	that 	the 	price 	cutter 	offers 	the 	reduced 	price 	and 	the 	time
that 	other 	wholesalers 	are 	able 	to 	respond 	to 	the 	pri~e
reductio~ 	Providing 	ten 	days 	notice 	to 	competitors 	of
prospective 	price 	cuts 	is 	likely 	to 	reduce 	or 	even 	effectively
eliminate 	this 	interval 	by 	giving 	competitors 	the 	opportunity 	to
post 	their 	own 	price 	reductions 	before 	the 	original 	price
reduction 	even 	goes 	into 	effect. 28 	As 	a 	result, 	the ten 	day
waiting 	period 	may 	decrease 	the 	incentives 	of 	industry 	members 	to
initiate 	price 	cuts 	and 	increase 	the 	likelihood 	that 	explicit 	or
implicit 	price 	fixing 	agreements 	can 	be 	successful.
3. 	Reguiremect 	that 	Man~facturers anC 	Who~esalers
Post 	Or.ly 	Delivered 	Reteil 	Prices
Under ~ection 210, 	manufacturers 	and 	wholesalers 	of 	beer 	and
wine 	are 	required 	to 	post 	uniform 	delivered 	prices 	for 	all
retailers. 	By 	prohibiting 	sell~rs 	from 	recognizing 	or 	rewarding
efficiencies 	or 	cost 	savings 	in 	various 	methods 	of 	distribution,
this 	requirement 	raises 	costs 	to 	some 	retailers. 	For 	example,
retailers 	that 	pick 	up 	their 	own 	purchases 	or 	that 	place 	orders
sufficiently 	large 	to 	reduce 	delivery 	costs 	cannot 	receive 	the
benefit 	of 	these 	cost 	savings. 	The 	adverse 	effects 	of 	this
policy 	are 	twofold. 	First, 	because 	cost 	savings 	are 	Dot
recognized, 	retailers 	that 	have 	lower 	delivery 	costs 	cannot 	pass
the 	cost 	savings 	on 	to 	consumers. 	Second, 	because 	the 	cost
savings 	are 	not 	rewarded, 	retailers 	have 	little 	incentive 	to
develop 	or 	implement 	more 	efficient 	means 	of 	transporting 	beer
:and 	wine. 	Consequently, 	the 	retail 	distribution 	of 	beer 	and 	wine
is 	more 	likely 	to 	be 	inefficient, 	resulting 	in 	higher 	prices 	to
consumers. 29
28 	In 	a 	market 	that 	does 	n~t have 	a 	ten 	day 	waiting 	period, 	a
price 	cutter 	may 	offer 	a 	significantly 	reduced 	price 	to
retailers 	without 	advance 	notice. 	Since 	retailers 	do 	not 	know
whether 	or 	when 	that 	lower 	price 	will 	be 	matched 	by 	ot~er
suppliers, 	retailers 	will 	have 	considerable 	i:lcentive 	to
purchase 	significant 	quantities 	of 	the 	reduced-price 	?roduct 	:rom
the 	initial 	price 	c~tter. 	With 	a 	ten 	day 	waiting 	perio~,
however, 	competing 	sellers 	that 	wish 	to 	meet 	or 	beat 	the 	reduced
price 	may 	post 	their 	own 	reduced 	price 	immed:ately. 	A:though
they 	too 	will 	have 	a 	ten 	day 	waiting 	period, 	they 	can 	vigorously
promote 	their 	own 	price 	recuction 	during 	~his 	interval, 	thereby
reducing 	the 	likelihood 	t~at retailers 	will 	place 	large 	orders
with 	the 	initial 	price 	cutter.
29 	Revisions 	to 	the 	delivered 	pricing 	rule 	in 	Section 	2:0
would 	probably 	also 	require 	conforming 	revisions 	to 	Section 	845-
06-90 	of 	the 	Comr..ission's 	regulations. 	Or. 	Admin. 	R. 	§ 	845-06-
(c onti nued ... )

4. 	In!Qrmation 	Exchange 	Aspects 	of 	Price 	Posting
The 	price 	posting 	requirements 	set 	forth 	in 	Section 	210
provide 	competitors 	with 	complete 	current 	information 	about 	one
another's 	prices. 	In 	addition, 	these 	requirements 	give 	industry
members 	ten 	days 	advance 	notice 	of 	their 	competitors' 	proposed
price 	changes. 	Section 	210 	also 	requires 	manufacturers 	and
wholesalers 	to 	adhere 	to 	their 	posted 	~rices 	and 	subjects 	those
,who 	do 	not 	comply 	to 	severe 	penalties. 	0
Particularly 	in 	markets 	that 	are 	sus~eptible to 	collusion,
the 	availability 	of 	comprehensive 	price 	information 	tends 	to 	make
it 	easier 	for 	industry 	members 	to 	coordinate 	prices 	and 	to 	detect
and 	discourage 	cheating 	on 	any 	collusive 	price. 31 	The
availability 	of 	such 	information 	disco~rages cheating 	in 	part 	by
increasing 	the 	likelihood 	that 	competitors 	will 	quickly 	discover
the 	price 	cut 	and 	retaliate 	by 	meeting 	(or 	beating) 	the 	reduced
price. 32 	In 	addition, 	in 	this 	market, 	once 	competitors 	post 	a
collusive 	price, 	the 	state 	will 	enforce 	that 	posted 	price,
thereby 	ensuring 	that 	all 	industry 	members 	adhere 	to 	the
29 ( ... conti nued)
090. 	It 	is 	unclear 	whether 	similar 	delivered 	pricing
restrictions 	apply 	to 	sales 	to 	wholesalers. 	If 	they 	do, 	such
restrictions 	would 	produce 	similar 	anticompetitive 	effects 	on 	the
whol es a1 e 	1 evel.
30 	The 	information 	made 	availa~le ~nder Section 	210 	differs 	in
nature 	from 	the 	pricing 	information 	that 	is 	often 	available 	from
. 	trade 	journals 	or 	other 	industry 	sources 	both 	because 	it 	includes
advance 	notice 	of 	proposed 	price 	changes 	and 	because 	the 	state
penalizes 	firms 	that 	deviate 	from 	the 	posted 	information.
31 	In 	fully 	competitive 	markets, 	the 	provision 	of 	quick,
accurate 	information 	generally 	tends 	to 	be 	procompetitive.
Indeed, 	perfect 	information 	is 	one 	of 	the 	underlying 	assumptions
of 	~he 	competitive 	model. 	Liquor 	markets 	may 	not, 	however, 	fit
the 	competitive 	model 	well. 	As 	discussed 	a~ove, 	liquor 	markets
may 	be 	conducive 	to 	collusion 	beca~se concer.tration 	is 	high 	i~
some 	segme~ts, 	entry 	is 	restrictea 	~y 	statute, 	and 	t~e 	gover~Ment
imposes 	sanctions 	on 	deviations 	from 	posted 	prices. 	Price
postins 	may 	have 	adverse 	effects 	on 	efficiency 	in 	this 	regulated
market.
32 	:f 	the 	information 	dissemi~ated through 	price 	posting 	were
also 	availa~le from 	trade 	journals 	or 	other 	independe~t sources
(~, 	sources 	that 	did 	not 	in 	turn 	rely 	upon 	price 	postings 	to
obtain 	or 	verify 	their 	information), 	the 	information 	disclosure
aspects 	of 	Section 	210 	would 	have 	no 	adverse 	effect 	on
efficiency. 	It 	seems 	unlikely, 	however, 	that 	nongovernmental
sources 	could 	provide 	the 	comprehensive 	information 	provided
under 	Section 	210.
13

collusive 	price. 	Such 	government 	enforcement 	will 	reduce 	the
costs 	to 	participants 	of 	enforcing 	the 	price-fixing 	agreement 	and
increase 	the 	likelihood 	that 	collusion 	will 	be 	successful.
III. 	Alte=nate 	Means 	of 	Achieving 	the 	Goals 	of 	Section 	210
. 	As 	i.ndicated 	earlier, 	the 	price 	posting 	requirem-ents 	of
Section 	210 	are 	not 	mandated 	or 	specifically 	authorized 	by
~tatute. 	Instead, 	these 	requirements 	were 	designed 	to 	make 	it
~asier to 	enforce 	the 	statutory 	prohibitions 	on 	providing
financial 	aEsistance 	to 	favo=ed 	retailers. 	In 	these 	comments, 	we
take 	no 	position 	on 	the 	likely 	competitive 	effects 	of 	particular
statutory 	prohibitions 	on 	price 	discrimination, 	but 	address
instead 	whether 	the 	current 	price 	posting 	system 	is 	needed 	for
the 	effective 	enforcement 	of 	Oregon's 	statutory 	requirements. 	In
reviewing 	the 	usefulness 	of 	the 	current 	price 	post~ng system, 	the
Liquor 	Control 	Comffiission 	may 	wish 	to 	balance 	any 	enforcement
benefits 	of 	price 	posting 	against 	the 	ad~inistrative and 	other
costs 	that 	the 	price 	posting 	system 	imposes 	both 	on 	the
Commission 	and 	on 	private 	parties. 33 	In 	addition, 	the 	Commission
may 	want 	to 	balance 	such 	enforcement 	benefits 	ag~inst the 	higher
prices 	that 	are 	likely 	to 	result 	from 	the 	curre~t price 	posting
requi rements.
While 	price 	posting 	may 	make 	it 	somewhat 	easier 	for 	the
Commission 	to 	determine 	whether 	the 	prices 	charged 	by 	wholesalers
or 	manufacturers 	to 	particular 	retailers 	are 	discriminatory, 	the
er.forcement 	benefits 	of 	price 	posting 	do 	not 	seem 	large.
Instead, 	it 	seems 	likely 	that 	the 	statutory 	prohibitions 	on 	price
disc=imination 	could 	be 	effectively 	enforced 	through 	less
expensive 	recordkeeping 	requirements, 	combined 	with 	appropriate
• enforcement. 34 	Section 	171 	of 	the 	Commission's 	currer.t
33 	Since 	we 	do 	not 	have 	information 	on 	the 	magnitude 	of 	these
costs, 	we 	do 	not 	undertake 	such 	a 	cost-benefit 	analysis 	in 	these
comments. 	We 	would, 	however, 	expect 	that 	the 	administrative 	and
compliance 	costs 	of 	price 	posting 	would 	be 	substantial.
34 	Complaints 	about 	preferer.tial 	prices 	typically 	come 	from
retailers 	who 	feel 	that 	other 	retailers 	have 	received 	a 	lower
pri ce. 	Wi th 	pri ce 	pos ti ng, 	the 	Comrr.i s s i on 	can 	deter;..i ne 	the
prices 	that 	the 	seller 	"should 	have 	charged" 	during 	the
applicable 	time 	period 	from 	its 	own 	files. 	Without 	p=ice
posting, 	the 	Commission 	would 	have 	to 	co~tact the 	retailer 	that
allegedly 	received 	the 	p=ice 	break 	or 	the 	seller 	that 	allegedly
gave 	the 	price 	break 	in 	o=der 	to 	begin 	its 	investigation.
Since, 	however, 	it 	is 	our 	unde=standing 	that 	the 	Commission's
staff 	already 	routinely 	m~kes 	such 	contacts 	in 	investigating
price 	disc=imination 	complaints, 	deleting 	the 	price 	posting
requirement 	probably 	would 	not 	significantly 	increase 	the
Commission's 	costs 	of 	investigation.
(cor.tinued... )
, ,
l ..

regulations 	already 	requires 	manufacturers 	and 	wholesalers 	to
keep 	extensive 	records 	on 	each 	sale 	or 	delivery 	of 	beer 	or 	wine,
including 	records 	of 	every 	rebate, 	discount 	or 	allowance 	for 	the
return 	of 	empty 	containers. 	Such 	a 	recordkeeping 	system 	would
seem 	fully 	adequate 	for 	purposes 	of 	enforcing 	the 	statutory
prohibitions 	on 	financial 	assistance, 	yet 	is 	much 	leis 	likely 	to
h~~m competition 	than 	~he 	current 	price 	posting 	requirements.
In 	the 	alternative, 	a 	price 	posting 	requirement 	that
~omitted the 	30 	and 	90 	day 	periods 	during 	which 	decreased 	prices
must 	be 	kept 	in 	effect, 	did 	not 	require 	a 	ten 	day 	waiting 	period
for 	price 	postings 	~o 	become 	effective, 	and 	did 	not 	impose 	a
delivered 	pricing 	rule 	would 	seem 	to 	achieve 	virtually 	all 	the
goals 	of 	the 	present 	regulations 	without 	creating 	the 	likely
anticompetitive 	effects 	of 	the 	current 	price 	posting
requirements. 	Eliminating 	the 	policy 	of 	making 	all 	price
postings 	public 	might 	also 	reduce 	the 	harm 	to 	consumers
occasioned 	by 	the 	rule. 35
34 ( ... continued)
Another 	possible 	advantage 	of 	the 	current 	price 	posting
rules 	is 	that 	the 	various 	waiting 	periods 	contained 	in 	those
rules 	prevent 	wholesalers 	from 	posting 	a 	low 	price 	for 	a 	very
short 	period, 	such 	as 	a 	few 	days 	or 	a 	week, 	in 	order 	to 	offer 	the
low 	price 	to 	only 	one 	or 	two 	retailers. 	If 	the 	Commission 	found
this 	to 	be 	a 	significant 	concern, 	however, 	it 	could 	specifically
require 	that 	any 	manufacturer 	or 	wholesaler 	that 	lowers 	its 	price
give 	all 	of 	its 	customers 	the 	op~ortunity to 	purchase 	products 	at
\the 	lower 	price. 	Manufacturers 	~nd wholesalers 	could 	also 	be
required 	to 	indicate, 	upon 	request, 	the 	manner 	in 	which 	all
customers 	were 	notified 	of 	the 	lower 	price.
A 	final 	possible 	advantage 	of 	price 	posting 	is 	that 	the
public 	availability 	of 	prices 	may 	increase 	the 	likelihood 	that
purchasers 	will 	no~ice and 	report 	possible 	viola~ions, 	thereby
deterring 	sellers 	from 	gran~ing price 	preferences. 	Since,
however, 	retailers 	~end ~o learn 	abou~ preferen~ial prices 	given
to 	o~hers 	through 	a 	variety 	of 	indus~ry sources, 	i~ 	is 	not 	clear
that 	price 	posting 	is 	necessary 	for 	the 	de~ec~ion and 	deterrence
of 	price 	discrimination. 	Instead, 	the 	penal~ies that 	the
Commission 	imposes 	fer 	price 	~iscrimina~ion, combined 	with
appropriate 	investigation 	of 	re~ailer complaints, 	would 	seem
sufficient 	to 	deter 	price 	discrimina~ion.
~ 5 	Th 	1 . k 	l' h 	- 	.. \.. 	.. 	. .. . 	.. 	. 	)-,.... 	fl 	~ 	.. '	- 	e 	~ 	e_~. ooc 	~.ja,- c0l71pe~l ... lve 	~nJury m:..:;..... 	ow 	... rom 	~:1e
public 	availabili~y of 	price 	postings 	depends 	upon 	the 	other
provisions 	of 	the 	price 	posting 	regulation. 	If, 	for 	example, 	the
ten 	day 	waiting 	period 	were 	deleted, 	it 	would 	be 	less 	likely
that 	the 	p~blic availability 	of 	price 	information 	would 	cause
significan~ co~petitive harm.
: 5

..
IV. 	Conr;lusion
For 	the 	reasons 	set 	forth 	above, 	the 	price 	posting
requirements 	contained 	in 	Section 	210 	of 	the 	Liquor 	Control
Commission's 	administrative 	rules 	may 	harm 	competitio~ and 	raise
prices 	without 	providing 	countervailing 	benefits 	to 	consumers.
In- addition, 	these 	p=ovisions 	do 	not 	seem 	necessary 	to 	attain 	the
apparent 	goals 	of 	the 	statutes 	that 	they 	were 	designed 	to
implement. 	Although 	consumer 	welfare 	may 	be 	advanced 	best 	by
eliminating 	Section 	210 	in 	its 	entirety, 	deleting 	from 	Section
210 	the 	ten 	day 	wai~ing period 	before 	price 	postings 	may 	become
effective, 	the 	30 	and 	90 	day 	periods 	duringw~ich decreased
pri ces 	mus t 	be 	kept 	in 	e ff ect, 	and 	the 	requi rernent 	that
manufacture=s 	off~r only 	delivered 	prices 	could 	also 	be
beneficial. 	Deleting 	the 	requirement 	that 	posted 	prices 	be 	made
publicly 	available 	may 	also 	enhance 	competition 	in 	this 	market.
We 	appreciate 	this 	opportunity 	to 	comment 	on 	~he
Commission's 	proposed 	rules. 	Please 	:eel 	f=ee 	to 	call 	or 	write
if 	we 	can 	be 	of 	any 	:urther 	assistance.
Si ncerely,
, 	1"7 	- 	/-:'
-" ~/ /-r/ .. ~,~---:	___ 	- 	/" I 	/ 	. 	r-'~
George 	J .v-"2wei~el
Director 	L/
Seattle 	Regional 	Office
16