Case Study Of Systembolaget

1241 Words5 Pages
Assumptions of the Monopoly Model Systembolaget operates as a government owned monopoly. The assumptions of this market structure are the following: • Single seller in the market Systembolaget has been Sweden’s only seller of alcohol since 1955, when it was founded and made a government owned alcohol monopoly to control and limit the consumption of alcohol. (“Historien Om Systembolaget”) • They have 40% or more of the market share According to data from 2014, Systembolaget has 79% of the market share of recorded alcohol consumption, however, it has 61% of the market share of total alcohol consumption (Hallberg, Joh, and Esa Österberg) Figure 3 (created using Excel) showing the market share of Systembolaget. • There are no close…show more content…
It is not the Swedish government that sets the prices on Systembolaget. On the other hand, the Riksdag (Translated: the Parliament) decides on the amount of VAT and alcohol tax to place on the goods, which naturally affects the price of all alcohol sold in Sweden (Ingerö, Ida). Systembolaget’s method of setting a price for their products involves numerous steps: 1. The supplier sets a price for the beverage for which Systembolaget buys it for. 2. Systembolaget calculates the amount needed to cover their costs (eg. Wages and rent) 3. Alcohol tax is added 4. VAT is added (approximately 25%) 5. The price gets rounded off to a whole number Due to the negative effects of alcohol, the government set a high alcohol tax and a high VAT on the demerit good. The supply curve shits to S+tax due to an increase in cost of production. This causes market quantity to decrease to Qtax. The price increases to Pc, which is consumer price, and producer price (Pp) falls. Both producer and consumer surplus decrease as a part becomes government revenue and another becomes the dead weight loss (DWL). Consumers, producers and society lose out due to the taxes imposed by the Swedish…show more content…
The myth that Systembolaget is only trying to make a profit can be debunked by the fact that alcohol and its effects create losses for the government. The government does receive large sums through VAT and alcohol tax but the cost to society due to abuse of alcohol is a lot higher. According to 2011’s Missbruksutredningen (Translated: abuse inquiry), alcohol creates a cost to society of 49 to 66 billion Swedish kronor ($6-8 billion). The government isn’t trying to exploit consumers but protect them and society from the effects of alcohol abuse. Price Elasticity of Demand for Alcohol Price elasticity of demand measures the responsiveness of quantity demanded of a good to a change in price. It gives the indication whether a good is elastic (large change in Qd) or inelastic (small change in Qd). Alcohol is a habit forming good, meaning that consumption patterns will almost remain constant with a change in price. As shown in figure 6, increasing the price due to a tax from Pe to Pc will only result in a small decrease in quantity demanded (Q to Q1) due the inelastic nature of alcohol. Because of this, an increase in taxation of alcoholic beverages will not reduce consumption patterns of this good by a large amount and thus the imposition of tax on alcoholic beverages will benefit the government by increasing government

More about Case Study Of Systembolaget

Open Document