Mandated exclusive territories: Efficiency effects and regulatory selection bias

In this paper we analyze the efficiency effects of state-mandated exclusive distribution territories in the U.S. beer industry. Using panel data for 48 states over a 10-year period we estimate both fixed-effects and instrumental-variable models of the impact of mandated exclusive territories on beer consumption. We find that standard OLS regressions of beer consumption suffer from selection bias, due to the endogeneity of state statutes. Correcting for this bias we estimate exclusive territory mandates increase consumption by between three and eleven%. Our results therefore indicate that exclusive territories in the beer industry increase social welfare and enhance the well-being of consumers.