When you have an ill like gambling or liquor, it makes sense to have a state monopoly to curb usage. The high monopoly price limits usage and rakes in more money for the state. State monopolies may be better than outright prohibition. But those are the only things good about them.

This logic of externalities works less well with a price discriminating monopolists. A monopolist may charge different markups on different products based on price sensitivity. That is, they may set a different monopoly price for each kind of liquor. If they can further discriminate with affinity clubs, rebates, personal coupons and so on, then each person can be paying their own personal monopoly price. The price discriminating monopolist does not deter usage if it does a perfect job, just extracts all the consumer surplus out of the sale. That suggests that the value to the citizenry of curbing usage through a state monopoly is falling with technology.

Consider the state lottery machine in the Chicago O’Hare airport. It has about 40 different games. What may have deterred entry through a high price and low choice in yesteryear certainly looks to me like a very aggressive price discriminating monopoly. Some entries cost $10, some just $2. Some have high prizes, some low and some groups of prizes. The state is not curbing the ills of gambling in the slightest via this method. It is just expropriating all the rent for the state.

Monopolies also perpetuate high cost. There has not been much in the way of innovation in internet lotteries coming from state lotteries. Some kind of security dongle distributed in state would allow state internal internet distribution of further lotteries at much lower cost than paper. The monopolist might do a calculus that says that such a system might increase overall revenues and decrease costs, but most of that would go to the state and the players and not us. Don’t expect too much innovation from monopolists that do anything except maximize their profits.

How about some conditional federal spending for states that allow liquor sales through the mail to encourage competition? That does not sound like a political winner. Good luck if you like mail order wine. The liquor lobby might well ban all mail order sales in state and out to protect each oligopoly. Cheers.