Tuesday, October 19, 2004
Small bottle or big bottle?
An important issue is going to be decided by South Carolina voters on November 2. This will not be the identity of the next US President. Presumably, we all know how South Carolina will vote in that race. The real issue for the South Carolinians on November 2 will be whether they will have a choice about how much liquor to buy when they get a cocktail in a bar. At this time, South Carolina is the only state in the Union that requires bartenders to use little 1.7 ounce bottles to make a cocktail. The current law (it appears to be part of South Carolina Constitution) has its pros and cons. Probably the two biggest drawbacks of the minibottle requirement is that the bottles are too big (the free-pour portions of hard liquor in the bars in other states are usually one ounce) and it’s hard to use them to make cocktails that require several different drinks such as Long Island ice tea. At the same time, the primary advantages of minibottles are that they protect against drink dilution by the bartenders and they make it harder for the bars to evade excise taxes. That is, minibottles may be impeding fraud. I am usually for the freedom of choice as long as the externalities are not significant, as they do not appear to be in this issue. So, if I resided in South Carolina, I would be pro-choice in this matter as well. What amazes me, however, is that the markets did not seem to have worked too well so far. My understanding is that the South Carolina current law requires the use of some minibottles rather than specifically the 1.7 ounce bottles. If so, why haven’t minibottle manufacturers come up with smaller bottle sizes that would accommodate the demand from the bar customers? One explanation might be that South Carolina imposes an excise tax in dollar amounts per minibottle (i.e., the so-called “specific tax”) rather than an ad valorem tax expressed in percentage of the price. If so, then the tax-inclusive price difference between a one-ounce bottle and a 1.7 ounce bottle would be perhaps too small to induce anybody to buy a one-ounce bottle. Also, the cost of packaging drinks in a minibottle might be a substantial part of the cost of the drink and that would also reduce the attractiveness of providing smaller minibottles. This issue might become irrelevant though after November 2. [Vice Squad has mentioned the S.C. mini-bottle issue a couple times in the past, including on August 1.]