Three-Tier System
Three-tier laws divide the industry into a brewer tier, a distributor tier, and a retailer tier and restricts each tier to its own function. The efficacy of the three-tier system was recently recognized in Manuel v. State of Louisiana:
“Without the three-tier system, the natural tendency historically has been for the supplier tier to integrate vertically. With vertical integration, a supplier takes control of the manufacture, distribution, and retailing of alcoholic beverages, from top to bottom. The result is that individual retail establishments become tied to a particular supplier. When so tied, the retailer takes its orders from the supplier who controls it, including naturally the supplier’s mandate to maximize sales. A further consequence is a suppression of competition as the retailer favors the particular brands of the supplier to which the retailer is tied to the exclusion of the other suppliers’ brands. With vertical integration, there are also practical implications for the power of regulators. A vertically integrated enterprise -comprising manufacture, distribution, and retailing – is inevitably a powerful entity managed and controlled from afar by non-residents.
The three-tier system was implemented to counteract all these tendencies. Under the three-tier system, the industry is divided into three tiers, each with its own service focus. No one tier controls another. Further, individual firms do not grow so powerful in practice that they can out-muscle regulators. In addition, because of the very nature of their operations, firms in the wholesaling tier and the retailing tier have a local presence, which makes them more amenable to regulation and naturally keeps them accountable. Further, by separating the tiers, competition, a diversity of products, and availability of products are enhanced as the economic incentives are removed that encourage distributors and retailers to favor the products of a particular supplier (to which distributor or retailer might be tied) to the exclusion of products from other suppliers.”
-Manuel v. State of Louisiana, 2008 WL 1902437 (April 30, 2008 La. App. 3 Cir.) (rejecting an antitrust challenge to state liquor laws).