Freedom in ties

Now this is not yet another post saying how we need the tie to defend John Willie Lees’ dishwater masquerading as beer against the depredations of stuff from Pictish and Thornbridge that actually has hops in it.

But, quite frankly, from the point of view of free market economics, I really see nothing wrong in principle with the tie. If someone owns a pub that they wish to lease out to someone else on the basis that the lessee will exclusively buy and resell some products from the lessor, then why shouldn’t the two of them freely enter into that arrangement? Obviously there need to be safeguards against the abuse of power by the lessor, and against the establishment of local and national monopolies, but apart from that I don’t see the problem, and don’t regard it as stifling competition. The fact that there are so many thriving micro-breweries suggests the tie doesn’t in practice operate as a barrier to entry in the brewing industry.

This kind of arrangement is common in many other retail and service businesses – for example many fast food chains such as Subway, McDonalds and Domino’s Pizza are largely run on a franchise basis. Petrol stations are much the same. Car dealerships have exclusive relationships with manufacturers, yet nobody moans that you can’t buy Fords at a Vauxhall dealer. And surely any business, whether a Tesco or a Wetherspoon’s, that is directly managed, is effectively tied as the owning company dictates what is sold there.

Even if the tie was abolished, then it is hard to see how pub owners could be prevented from switching pubs over from tenancy to management or using a franchise model. Indeed the former is exactly how Sam Smiths’ run their pub estate – put every pub under management and have all products supplied centrally with virtually no purchasing discretion allowed to the manager. Without the tie, other forms of collective running and supplying of pubs would arise, and to imagine that it would result in 50,000 independent freetraders is pie in the sky. And, even if this could be achieved, it is questionable whether the atomisation of the market it would produce would really be to the benefit of consumers.

The problems of the giant pub companies really have little to do with the tie – they essentially stem from a flawed business model that was not resilient to an economic downturn and did not offer any distinctive identity to lessees. They will crumble and fall because of their own internal contradictions.