Monday, April 19, 2010

Happy Hours

I have been provoked...

The OLCC has had an interesting prohibition on the advertisement of happy hour: you could do it within the premises, but you could not advertise externally.  Now, in response to increasing pressure, the have relaxed the rule but in an entirely byzantine way: you can advertise the time of special priced drinks, or you can advertise the special prices, but not both.  The rationale, according to the Oregonian article on the announcement (not on line and already recycled so I am going by memory here) is to make sure price wars don't ensue and thus promote binge drinking.

Let's take things one at a time.

First, would external advertising of drink price specials lead to lower overall prices?  Economic theory suggests that it would.  By lowering search costs for customers they find it cheaper and thus easier to be choosy and this means more price sensitive.  Most bars are serving essentially the same things - though the quality of the pour might differ and brewpubs often serve exclusive beers - so a lower price would likely be a key factor in where they drink.  How big this price effect would actually be is unclear but I suspect it would be very small given the amount of information already available about happy hours and word-of-mouth.

Second, would these lower prices result in more binge drinking and problem drinking?  There is evidence of an overall price effect on alcohol consumption, particularly among young adults and teens.  But this is not quite the same thing - we are speaking here of drinking in a bar or pub.  So the teen factor is eliminated and the drinking here is during a special time in a controlled environment.  The US Dept. of Transportation is worried about happy hours and drunken driving and suspects that it matters a lot, thought there is only indirect evidence.  But their report is about happy hours in general, not the advertising of price.  They mention one study that did not find an effect of happy hours overall:
Only one study has attempted to directly evaluate the efficacy of happy hour laws in lowering alcohol consumption. The banning of happy hour practices in Ontario, Canada, was studied by observation of drinking habits before and after the ban, supplemented with analyses of total per capita consumption in the city (Smart and Adlaf, 1986; Smart, 1996). No significant decline in alcohol consumption was observed following the ban. Given that there was little time (two days) allotted to observing pre-ban drinking habits, and given that aggregate consumption figures may not be that sensitive to changes in happy hour practices, the results were inconclusive as far as the overall effect on alcohol consumption of the presence or absence of happy hour practices.

I left the DOTs disclaimer in, but it is not clear to me that this is a problem.  Anyway, though overall drinking may not change the concentration of drinking during a time period might cause externality problems in terms of excessive drunkenness and driving whilst impaired.

But the OLCC allows happy hours already so the new law is quizzical.  If it is the price war that is of concern, then why allow price advertising at all?  And if it is the price specials during certain hours, why allow happy hours and advertising of the times?

Given the rules already in place it is hard to understand these new ones.

In the end I don't really have a opinion other than it is unnecessarily complicated and a general economist's take that it is not clear that regulation is necessary at all.  There are externalities associated with alcohol consumption, for sure, and this is one reason alcohol is taxed fairly heavily, but once the Pigovian taxes are there, let the market do its thing.  However, happy hours might contribute excessively to drunk driving in which case there might be a case for prohibiting them altogether, but the evidence is not at all clear on this connection as far as I can tell.  So the advertising part seems a bit misguided - if you are going to have a policy on happy hours themselves, fine, but if you are going to allow drinks specials then it is odd to not let you talk about them.