Monday, 26 March 2018

Why the alcohol industry is a big supporter of self-driving cars

The Washington Post reports:
Automakers and tech firms have long been the ones hustling to get self-driving cars on the street. But they’ve lately been joined by a surprise ally: America’s alcohol industry.
In recent weeks, two industry groups -- one representing wine and liquor wholesalers, and another representing large producers -- have thrown their weight behind coalitions lobbying to get autonomous vehicles on the road faster.
Inherent in their support, analysts say, is an understanding that self-driving cars could revolutionize the way Americans drink. Brewers and distillers say autonomous vehicles could reduce drunk driving.
Without the need to drive home after a night at the bar, drinkers could also consume far more. And that will boost alcohol sales, one analysis predicts, by as much as $250 billion.
This week in ECONS101, we are talking about elasticities. On Wednesday, we will discuss cross-price elasticities, so this WaPo story is certainly relevant, because it suggests that alcohol and self-driving cars are complements. Complements are pairs of goods where the demand for one good is negatively related to the price of the other good. In other words, if Good A decreases in price, consumers will demand more of Good A (because of the Law of Demand), as well as more of Good B (the complementary good to Good A).

How does this relate to alcohol and self-driving cars? If self-driving cars are only lightly regulated (or left unregulated), then the cost of using them decreases (compared with if they were more heavily regulated). Consumers will be more likely to buy a self-driving car if it costs less, so light regulation of self-driving cars will increase the number of consumers who purchase them. Consumers with self-driving cars will also be able to drink more and still use their own vehicle to get home (rather than public transport or a taxi or Uber). This suggests that alcohol and self-driving cars are complements.

Not all consumers will drink more of course, but at least some who would previously have had little to drink (knowing they had to drive home) will instead drink more. More drinking means more alcohol sales, and greater profits for the alcohol industry. And that is why it makes sense for the alcohol industry to be a big supporter of self-driving cars. Forget "autonomous vehicles could reduce drunk driving": this is about the alcohol industry's potential for greater sales and profits.

So, the next obvious question is: how long will it be before the anti-alcohol public health lobby becomes anti-self-driving vehicles as well?

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