Raising Rivals Costs: Bar Edition

Just read a great post By Dom over at the liquor ladder. Sounds like the Hospitality Association wants to restrict liquor licensing to certain parts of Wellington (Courtney Place and Cuba St).

But the Council, who seem to think the scenes in Courtenay Place late on Fridays and Saturdays represent “vibrancy”, and the Hospitality Association, led by individuals who, I believe, own businesses in Courtenay Place, are planning a regime that will penalise anyone trying to establish a business anywhere else – businesses that might give discerning consumers an alternative to the chaos on Courtenay Place. It may not be what the Council intended, but it’s what’s called an unintended consequence. It’s what happens when you draw lines on a map and create differences between the two sides.
Of course not all the results will penalise businesses outside the strip. If you’re a Courtenay Place property owner learning that your tenants have privileges with respect to liquor licensing, you’re going to put their rent up. I look forward to hearing the Hospitality Association complaining about sky-rocketing rents in the street in about a year’s time.

Now they may be doing this for good reasons. But to put an economics slant on what Dom says, this sounds a lot like what economists call “Raising Rivals Costs” (RRC). i.e., people who already have bars in Courtney/Cuba want to limit the ability of people to operate bars in other ares, thus hindering competition from other ares of the city.

While it may raise the rent of existing tenants, from memory (I live in Auckland now….) the bars on Courtney place at least are all quite big so may be able absorb the higher fixed costs. So in a way this could be seen as shutting out competition by smaller fringe operators (i.e. most craft beer bars) who won’t have the scale to pay high rents. I for one will not be happy to see a reduction in pub innovation!

  • http://www.tvhe.co.nz/ Agnitio

    Doing something to be seen to be doing something… reminds me of “Scenes no civilized society can relish”

    • http://tvhe.co.nz/ Matt Nolan

      I’m too old to do unrelishable things now, gives me a sore back.

      Still if Wellington does screw it’s own bar scene, that gives a competitive edge to other cities like Auckland I guess. If that is what Wellington wants to do …

  • http://www.tvhe.co.nz/ jamesz

    The council aren’t paid to do nothing, after all. Even if preferences were static would we ever converge to optimal regulation, or just circle around somewhere in the vicinity?

    • http://tvhe.co.nz/ Matt Nolan

      Indeed. I think the issue is regulatory capture – which is what is complained about here. If they merely had the habit of thinking about trade-offs this would be less likely, as I fundamentally believe they are NOT doing it with the intention to cause harm!

      • http://brennanmcdonald.com/blog/ Brennan McDonald

        As soon as they try and force nightlife into a zone, some cheaper zone or different sorts of events will pop up to take advantage of the lower rent.
        The council seems to think that after a bylaw is passed, the firms and consumers affected by that bylaw do not alter their welfare maximising behaviour in any way, shape or form.
        Maybe the consequences are secretly intended by council officials – crucifying the bar scene makes inner city living more attractive for some and frees up more lettable floor space for cafes and vintage clothing stores.

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