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Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
Ellig Wiseman Wine Isnie Presentation 2006
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Ellig Wiseman Wine Isnie Presentation 2006

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  • 1. The Economics of Interstate Direct Wine Sipping Jerry Ellig Mercatus Center, George Mason University Alan Wiseman Department of Political Science, Ohio State University
  • 2. What’s the issue?
    • What if there were no Commerce Clause?
    • 21 st Amendment lets states regulate importation of alcohol
    • Bans, reciprocity, limited shipment, felony states
    • Commerce Clause challenge arose because some states discriminate against out-of-state shippers
    • Virginia’s “natural experiment”
  • 3. Focus of this paper
    • Have online and Virginia bricks-and-mortar prices fully converged, after taking shipping costs into account?
    • Convergence would suggest competition has increased
    • Absence of full convergence may indicate barriers to competition or important forms of nonprice competition
  • 4. Virginia and Direct Shipment Timeline April 2003 :VA Gov. signs bill to legalize direct shipment. May 2005: Supreme Court rules that discriminatory shipment bans are unconstitutional July 1, 2003 : Direct Shipment to VA is legal. July 2002 : Price and variety data collected from online and bricks and mortar stores in Northern VA March 29, 2002 : Federal Judge finds VA direct shipment law unconstitutional April 1, 2002: Federal Judge puts hold on ruling, pending appeal July-August 2004 : Price and variety data collected from online and bricks and mortar stores in Northern VA
  • 5. Why Northern VA is a good case study
    • Relatively affluent suburbs
      • Likely to have numerous bricks-and-mortar wine stores
      • Likely to have many informed wine consumers
      • Likely to have consumers interested in online purchase
    • Wine is widely available (small shops, beverage superstores, warehouse clubs, groceries, 7-11s)
    • VA law explicitly seeks to encourage substitution of beer/wine for liquor
  • 6. Virginia Direct Shipment Permits
    • Applies to wineries, breweries, and retailers licensed in home state
    • Application must identify specific brands
    • Virginia wholesaler must be notified
    • Seller can ship 2 cases/customer/month
    • 4% sales tax, 40 cent/liter excise tax remitted to state
    • Age verification and adult signature at delivery
  • 7. Not everyone can ship to Virginia
    • Muscat dessert wine
    • Reply to: xxxxxxxxxxxxxx @craigslist.org
    • Date: 2005-11-15, 9:31AM EST
    • Muscat dessert wine. 500ml bottle. Bottle has been opened, one glass has been poured, bottle has been re-corked. I think I'll stick with chardonnay next time. Age verification will be required upon pick-up. ~Matt
    • this is in or around Montgomery Village, MD
    • (from Craig’s List)
  • 8. Data
    • Sample: Wine and Spirits Annual Restaurant Poll
      • Survey 2,112 restaurants in U.S.
        • Rank ten top selling wines
        • “ Top 50” from 2002 (83)
        • “ Top 50” from 2004 (78)
      • Virginia Data—All “wine retailers” (15) within 10-mile radius of McLean, VA
      • Online Data: Winesearcher.com, wineries
  • 9. Transportation Costs
    • Bricks and Mortar Stores
        • Standard government reimbursement for mileage
        • Multiplied times round-trip distance to store
    • Online Stores -- Data drawn from UPS
        • Shipping costs for boxes of appropriate size and weight
        • Various shipping times considered
    • Average transportation costs established by dividing total transportation costs (online or offline) by relevant number of bottles (1, 6, 12)
  • 10. Cost Comparison Calculations
    • Total Costs of Bottles
      • Lowest (online/offline) retail bottle price +
      • relevant shipment/transportation costs =
      • total online/offline bottle price
    • Cost Comparisons
      • Lowest total online bottle price –
      • Lowest total offline bottle price =
      • “Cost Savings/Extra Expenses when purchasing online”
  • 11. Mean Cost Savings (or Extra Expenses) per Bottle When Shopping Online for Entire Sample
    • Average posted prices lower online
    • Transportation costs eat up savings, except for 6 or 12 bottles via UPS ground
    • Online price advantage expressed in $ fell from 2002-2004
    • Percentage price spread fell by 40 percent (Wiseman and Ellig 2005)
    -2.17** -0.120 1.601** -2.91** -0.599 1.45** -9.59** -5.17** -1.45* 3.048** 2004 N=63 0.110 Online Savings per Bottle (UPS 2 nd Day Air—12 Bottles) 1.353 Online Savings per Bottle (UPS 3 rd Day Air—12 Bottles) 3.543** Online Savings per Bottle (UPS Ground Service—12 Bottles) -0.767 Online Savings per Bottle (UPS 2 nd Day Air—6 Bottles) 0.707 Online Savings per Bottle (UPS 3 rd Day Air—6 Bottles) 3.342** Online Savings per Bottle (UPS Ground Service—6 Bottles) -7.256** Online Savings (UPS 2 nd Day Air—1 Bottle) -2.443* Online Savings (UPS 3 rd Day Air—1 Bottle) 1.507 Online Savings (UPS Ground Service-Buying 1 Bottle) 5.838** Online Savings (No Transportation Costs) 2002 N=67 Category
  • 12. Mean Cost Savings (or Extra Expenses) per Bottle When “Comparison Shopping” for Entire Sample
      • Comparison shopping yields substantial savings
      • Savings from comparison shopping decreased from 2002-2004
    1.203** 2.477** Online Savings per Bottle (UPS 2 nd Day Air—12 Bottles) 1.871** 3.020** Online Savings per Bottle (UPS 3 rd Day Air—12 Bottles) 2.671** 4.303** Online Savings per Bottle (UPS Ground Service—12 Bottles) 1.007** 2.276* Online Savings per Bottle (UPS 2 nd Day Air—6 Bottles) 1.737** 2.752** Online Savings per Bottle (UPS 3 rd Day Air—6 Bottles) 2.635** 4.201** Online Savings per Bottle (UPS Ground Service—6 Bottles) 0.413 1.629 Online Savings (UPS 2 nd Day Air—1 Bottle) 1.991** 1.991** 3.720** 2004 N=63 2.207* Online Savings (UPS 3 rd Day Air—1 Bottle) 3.569** Online Savings (UPS Ground Service-Buying 1 Bottle) 5.974** Online Savings (No Transportation Costs) 2002 N=67 Category
  • 13. Mean Cost Savings (or Extra Expenses) per Bottle When Shopping Online for wines ≥$20/bottle 0.698 2.786** 4.482** 0.034 2.372* 4.403** -5.909** -1.481 2.251 5.884** 2004 N=27 3.654 Online Savings per Bottle (UPS 2 nd Day Air—12 Bottles) 5.005** Online Savings per Bottle (UPS 3 rd Day Air—12 Bottles) 7.194** Online Savings per Bottle (UPS Ground Service—12 Bottles) 2.912 Online Savings per Bottle (UPS 2 nd Day Air—6 Bottles) 4.396* Online Savings per Bottle (UPS 3 rd Day Air—6 Bottles) 7.027** Online Savings per Bottle (UPS Ground Service—6 Bottles) -3.693 Online Savings (UPS 2 nd Day Air—1 Bottle) 1.526 Online Savings (UPS 3 rd Day Air—1 Bottle) 5.512** Online Savings (UPS Ground Service-Buying 1 Bottle) 9.435** Online Savings (No Transportation Costs) 2002 N=36 Category
  • 14. Mean Cost Savings (or Extra Expenses) per Bottle When Shopping Online for wines <$20/bottle -4.32** -2.299** -0.56 -5.12** -2.83** -0.76*** -12.35** -7.94** -4.23** 0.921** 2004 N=27 -4.22** Online Savings per Bottle (UPS 2 nd Day Air—12 Bottles) -2.89** Online Savings per Bottle (UPS 3 rd Day Air—12 Bottles) -0.697 Online Savings per Bottle (UPS Ground Service—12 Bottles) -5.04** Online Savings per Bottle (UPS 2 nd Day Air—6 Bottles) -3.58** Online Savings per Bottle (UPS 3 rd Day Air—6 Bottles) -0.93** Online Savings per Bottle (UPS Ground Service—6 Bottles) -11.4** Online Savings (UPS 2 nd Day Air—1 Bottle) -7.05** Online Savings (UPS 3 rd Day Air—1 Bottle) -3.14** Online Savings (UPS Ground Service-Buying 1 Bottle) 1.661* Online Savings (No Transportation Costs) 2002 N=36 Category
  • 15. Why haven’t prices fully converged?
    • Only one year after shipment ban was repealed
    • Supreme Court case not yet decided in 2004
    • Valuable niche exists for purchasing products in real time
    • Characteristics of Virginia’s direct shipment law that limits de facto threat of online competition.
      • Impact of quantity limits on price competition?
  • 16. Conclusions
    • Legalization has narrowed, but not eliminated, online-offline price differentials
    • Possible explanations for existing differential
      • Timing
      • Competition still inhibited?
      • Nonprice attributes of visiting wine stores
    • Results consistent with economic theories emphasizing potential for e-commerce to facilitate more efficient and competitive markets
    • Consistent with logic supporting Commerce Clause

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