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An LCBO store – part of Ontario’s liquor retail monopoly . Galit Rodan for the Globe and Mail

Galit Rodan/The Globe and Mail

In Ontario, the only thing worse than stale beer is stale political promises to break the province's monopoly on the sale of alcohol. Now, a new study by a prominent economist has dismantled one of the last arguments against allowing privately owned retailers to sell alcohol. The Ontario government's justifications for preserving its monopoly are more shallow than ever.

Advocates of a continued state monopoly on liquor retail sales have historically argued that the current system protects, and even increases, the government's revenue, and thus helps fund the province's social programs. Allowing private retailers to sell alcohol and compete on price could reduce the government's revenue, they argue.

The new study, conducted for the Ontario Convenience Store Association by the University of Waterloo economist Anindya Sen, strongly suggests that the opposite is true – that a network of licensed alcohol retail stores could increase the province's revenue while still lowering the prices paid by consumers.

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Using data from four Canadian provinces, Professor Sen concludes that, all other factors being held constant, more competition in the market would result in a 5.7-per-cent net-revenue increase for provincial liquor boards, and ultimately for provincial coffers. His findings show that the impact of lower prices would be offset by an increase in total sales, and by the revenue generated by licensing fees paid by the new private players in the retail industry.

In the light of Prof. Sen's analysis, and that of a similar study conducted in 2005 by Grant Thornton for the provincial government, those trying to justify the LCBO's retail monopoly have lost their main economic argument. Giving consumers more flexibility and accessibility is entirely compatible with increased revenues for provincial coffers, and it is what Ontario should do.

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