Regulatory compliance costs in the Canadian brewing industry

Abstract

This paper estimates the gains associated with a policy of removing Canadian interprovincial barriers to trade in beer. An historical, institutional and political introduction clarifies the problem context and frames the policy conclusions the study offers. The key strategic and competitive factors in Canadian brewing are listed and evaluated. A mathematical programming model of the brewing industry is described which uses constraints to create four cases which represent alternative regulatory regimes. The relaxation of interprovincial sales barrier constraints characterizes the free market cases. Optimal decisions for a dominant competitor are computed for each case. Results suggest that significant returns to regulatory reform can be expected. These results have distinct policy implications, since current national costs of regulatory compliance with the interprovincial sales restrictions alone is estimated to be in excess of 100 million dollars per year. When combined with the costs of other regulatory controls, the overall regulatory compliance costs are in excess of 150 million dollars per year for this industry.