The New Minimum Price for Alcohol

(by Bruce Lyons) In a post last May, I discussed the dangers of using minimum prices to reduce binge drinking.  I suggested that any minimum price set greater than cost (inclusive of tax) could be highly damaging to competition and actually promote alcohol consumption by incentivising marketing activities.  Today, the government announced its proposal to prevent retailers from selling at less than the tax element of cost.  This clearly meets the cost criterion and should not be anti-competitive.  It limits cross-subsidisation and can be viewed as a way to ensure an efficient tax system justified by the negative externalities of binge drinking.  So far so good, but there is a serious danger.  Many will see this proposal as a toehold to establish the mechanism for enforcing a minimum price which can be ratcheted up in the future (other than by raising taxes).  This would be a bad idea but it will take strong political leadership to keep to the cost rule.

Postcode Lotteries and More Competition : Should we be worried about the English NHS reforms?

(by Bruce Lyons) The UK government is seeking to boost competition in the English National Health Service.  GPs are being given the power to commission most treatments and services, while hospitals and other secondary providers will have to compete to attract patients.  Media comment has ranged from the reform’s revolutionary nature to the management burden on GPs.  Two more specific issues have also been prominent in the media.  Fears have been expressed about: price competition driving down standards; and the so-called ‘postcode lottery’ whereby one person may not have access to a service or treatment that is accessible to their near neighbour.  For any other product subject to competition, we are not generally worried about competition providing suboptimal quality (though economic theory gives us mixed results).  Nor are we normally concerned about one person getting a different deal from their local shops. So why should we be concerned about these issues in health care?