Measuring the Economic Impacts of Alcohol Pricing Policy Options

18 January 2011 — The availability of low-price, high-strength alcohol is strongly associated with crime, disorder, and antisocial behaviour. The British Home Office commissioned RAND Europe to assess the likely economic effects of different pricing policies on different consumers and producers, the health of the UK economy, and unrecorded (black market) consumption of alcohol, and used RAND Europe's study to inform their report, The likely impacts of increasing alcohol price: a summary review of the evidence base.

The three different pricing policies being investigated are increased taxation, minimum price, and a ban on sales below cost. The primary research questions we addressed in this analysis are:

  • what is likely happen to different consumer types;
  • what is likely to happen to different producer types;
  • what is likely to happen to the overall health of the UK economy; and
  • how likely is a shift to unrecorded consumption (e.g., cross-border shopping, home-brewing, tax fraud)?

We followed a two-phased approach in which we provide a literature review and an economic analysis. In the first phase, we conducted a rapid evidence assessment of existing research on the economic consequences of the three pricing policies of interest to the Home Office (minimum pricing, ban on sales below cost and increases in alcohol excise duty rates). In the second phase, we undertook a theoretical analysis of how pricing policies can affect the market and analysed existing data both on alcohol consumers and on the alcohol market in the UK (for instance, the General Household Survey and the alcohol of the Retail Price Index) to describe likely outcomes in the UK.

Main activities:

  • Rapid Evidence Assessment: we reviewed the evidence on the economic impacts of minimum pricing, alcohol taxation, and sales below cost;
  • Economic theoretical analysis: we described the nature of supply, demand, and surpluses accumulated in the UK alcohol industry;
  • Describe summary statistics: we illustrated trends and current state of the industry and market structure (i.e. number of small and large firms, the market share of firms) and trends in price and price elasticities; and
  • Expert and stakeholder interviews: we performed semi-structured interviews with economists, business academics, and trade association representatives involved in industrial organisation research or reporting on the alcohol industry.

The RAND Europe study, Preliminary analysis of the economic impacts of alcohol pricing policy in the UK, was authored by Priscillia Hunt and Lila Rabinovich.