Increasing Alcohol Prices Unlikely to Reduce Consumption

Increasing the price of beer, wine and liquor is often proposed as a way to reduce alcohol consumption. However, research suggests that such a policy may not actually be effective and could even be counterproductive.

Researchers from the Prevention Research Center in Berkeley, California, analyzed the effects of alcohol prices on consumption in Sweden over a ten-year period. The results suggest that when the cost of their favorite beverage increases, customers switch to lower-cost brands and keep drinking the same amount of alcohol.

The investigators warn that raising the price of alcohol can backfire. “A price hike on the most expensive brands, they explain, may simply lead consumers of these brands to switch to cheaper alternatives -- and with the money saved, they buy more alcohol and end up drinking more.” 1

Authors found that price/quantity tradeoffs were substantial within a beverage type (for example buying less expensive brands when prices are raised) and between beverage types (for example, switching from beer to wine or distilled spirits if beer prices increase).

The research involved investigators from the University of Texas School of Medicine, the Prevention Research Center (Berkeley, California), and the Karolinska Institute at the Center for Alcohol and Drug Prevention (Huddinge, Sweden). It was funded by Forskningsradsnamnden and the National Institute on Alcohol Abuse and Alcoholism (NIAAA).

References

  • 1. Raising alcohol prices unlikely to curb demand. Reuters, January 6, 2006.
  • Gruenewald, Paul J., et al. Alcohol prices, beverage quality, and the demand for alcohol: Quality substitutions and price elasticities. Alcoholism: Clinical and Experimental Research, January, 2006.

Filed Under: Alcohol Economics