Recently, it was announced through a Federal Trade Commission (FTC) press release, that the FTC filed a petition in federal court to force Total Wine and More (Total) to produce documents related to the FTC’s investigation into Southern Wine and Spirits (Southern). The FTC order sought documents from Total “as part of its investigation into whether Southern Glazer’s, a distributor of wine and spirits products, has engaged in discriminatory practices in its sales to retailers like Total Wine in violation of the Robinson-Patman Act or engaged in other unfair methods of competition in violation of Section 5 of the FTC Act.”[1]

It seems the FTC as an agency is carrying out the dirty work of its Chairwoman Lina Khan’s Neo-Brandeis Movement, which adheres to the believe that centralized private power is a danger to a democracy’s social and economic conditions.

I want to make clear that this is a pending investigation and nothing has been concluded.

But what is clear from the FTC is they are investigating what they deem as an uncompetitive scheme, where Southern offers better pricing and better deals to larger retailers than they provide for smaller retailers. The FTC indicated the investigation revolves around whether Southern’s sales practices violate the Robinson-Patman or if Southern “engaged in other unfair methods of competition in violation of Section 5 of the FTC Act.”[2]

The Robinson-Patman Act prohibits a supplier from offering better prices to retailers at the expense of smaller competitors. Section 5 of the FTC Act prohibits ‘‘unfair or deceptive acts or practices in or affecting commerce.’’

My view on things

I previously wrote a post criticizing Lina Khan’s action towards Southern. Shortly after, I received emails jeering me for siding with Southern when I am always against them, some wondered whether I had some kind of conversion and whether I sold out.

Let me be clear, my view is not based on the party being investigated, but on the actions taken by the FTC. I believe the FTC’s actions amount to market manipulation and that the FTC is dusting off an old put to sleep statute to justify them flexing their muscles.

Further, I also am concerned about some of the law enforcement activities recently, which seem motivated by the political flavor of the day versus serving justice. When I see the FBI investigating Catholic churches based on no provocation or probable cause, I become a little concerned about the direction of law enforcement investigations. So, at first blush I am skeptical of an investigation based on an FTC Chair’s hell-bent philosophy on how markets shall operate, and I am also skeptical of using the power of the state to manipulate market conditions and carry out this Neo-Brandeis philosophy.

If I were to celebrate the FTC taking on Southern because I am not a supporter of the wholesale tier, then I am in favor of a government strongmen running the alcohol system through laws to dictate market manipulation. As I think many state laws are terribly written to favor the wholesale tier and distort the market, I cannot in good conscious be for another act by government to manipulate the free market.

I am first and foremost a free market capitalist, this philosophy takes me to strange places where I end up depending on the circumstances, supporting small retailers and producers, big soda, and the largest liquor wholesaler in the country. Consistency of philosophy will sometimes lead to inconsistent results. And this may be the only time, I end up in agreement with Southern.

Market Manipulation

Lina Khan through her Neo-Brandeis campaign, is desiring to reconfigure the pricing models in the liquor world.

In many states the practices being investigated by the FTC is legally permissible. Because liquor is uniquely regulated by the states, this factor holds importance. As someone who drafted the Illinois “Of Value”/”Tied House” regulations, Khan’s investigation seems perplexing. Under Illinois’ “of value” regulation, a producer or distributor is allowed to provide a quantity discount to a retailer. The regulations requires that the quantity discount be offered to  “all similarly situated retailers in the same geographic area.”

I don’t think there is anyone alive that would believe a major retailer is similarly situated to a small retailer. The large retailers are taking advantage of these rules, and acting in legal accordance.

But beyond the fidelity to the rule’s aspect, we must look at what is the impact of Ms. Khan’s decision.

It is natural that larger retailers will maintain a negotiating advantage through economy of scales that small retailers do not maintain, this is true for not only liquor but even marshmallows and baseball cards.

This economic factor gets ignored in the Neo-Brandeis analysis, because the most important aspect of this philosophy is not market economics but cutting down the tallest tree.

If Khan’s FTC is successful and goes after Southern for offering lower prices to larger retailers based on economies of scale, then there could be a leveling of prices across the board.

But as the great Milton Freidman stated “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”

What could result is the quantity discount offered to large retailers will disappear and the cost will be passed onto the consumer. In the age of inflation, FTC’s actions could lead us down the road to higher prices.

In the end some many feel good as Southern is becoming a punching bag, and believe me I don’t cry for Southern, and I understand the animus some have towards them. But this issue is bigger than Southern, an agency fulfilling their political belief system by manipulating market prices and utilizing law enforcement to do it, makes me worried about the future of the free market.



[2] Id.