An economic analysis of the determinants of Montana alcohol retail license prices

Abstract

In Montana, there are a wide array of different alcohol retail license types. The three major types of retail licenses for on-premises consumption are all-beverage, beer and wine, and restaurant beer and wine. The state limits the number of available licenses of each type, employing city-level quotas for incorporated areas and county-level quotas for unincorporated areas. The licenses may trade freely within each quota area, but generally may not be trade between areas. Differing conditions in each quota area leads to large differences in license prices between the various markets. To help explain the differences in price, the study lays out a theoretical model regarding license values. It then tests the model's predictions using license price data from the Montana Department of Revenue. Empirical results are calculated using ordinary least squares, finding that gambling revenue, university enrollment, income, and tourism are all significant determinants of license price. Additionally, the individual license characteristics are statistically and economically significant. These results support the theoretical predictions, providing evidence that the model is an appropriate way to think about the license system.