Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Legislative Action and Market Response: Results of Virginia’s Natural Experiment with Direct Wine Shipment Alan Wiseman De...
The Constitutional Issue <ul><li>21 st  Amendment bans “transportation or importation into any State … of intoxicating liq...
Situation as of 2002 <ul><li>“ Three tier” system separates production, wholesaling, retailing </li></ul><ul><li>Many stat...
Virginia and Direct Shipment <ul><li>Banned interstate but allowed in-state wineries to ship direct to consumers </li></ul...
Not everyone can ship to VA … <ul><li>Muscat dessert wine  </li></ul><ul><li>Reply to:  [email_address] </li></ul><ul><li>...
Our Wine Sample <ul><li>Wine and Spirits  Survey of Top 50 selling wines in restaurants (83 bottles in 2002, 78 in 2004) <...
Analysis of 2002 data <ul><li>Price savings (including shipping costs)  </li></ul><ul><ul><li>8-13% on wines costing more ...
Why? <ul><li>Ability to search vastly larger # of sellers nationwide </li></ul><ul><li>Cost to wholesaler of handling smal...
Variety: 2002 vs. 2004 <ul><li>“ No wholesaler worth his salt would fail to market any quality product for which a demand ...
Lowest posted price: 2002 vs. 2004 72 99.99 7.69 15.12 22.00 Lowest online price 2004 63 89.99 7.99 15.88 24.21 Lowest off...
Percentage price spread, 2004 (excludes shipping costs) <ul><li>(cheapest bricks and mortar price bottle i)-(cheapest onli...
Did Virginia’s Law Matter? Price spread is at least 6 points (40%) lower in 2004 % spread is higher for more expensive bot...
Future Research <ul><li>Have prices fully converged? </li></ul><ul><li>What does variability within the online and offline...
Upcoming SlideShare
Loading in …5
×

Ellig Wiseman Legislative Action And Market Response Wine 2005

435 views

Published on

  • Be the first to comment

  • Be the first to like this

Ellig Wiseman Legislative Action And Market Response Wine 2005

  1. 1. Legislative Action and Market Response: Results of Virginia’s Natural Experiment with Direct Wine Shipment Alan Wiseman Department of Political Science, Ohio State U. Jerry Ellig Mercatus Center, GMU
  2. 2. The Constitutional Issue <ul><li>21 st Amendment bans “transportation or importation into any State … of intoxicating liquors, in violation of the laws thereof.” </li></ul><ul><li>“ Section 2 [of the 21 st Amendment] does not allow States to regulate direct shipment of wine on terms that discriminate in favor of in-state producers.” -- Granholm v. Heald, 2005 </li></ul>
  3. 3. Situation as of 2002 <ul><li>“ Three tier” system separates production, wholesaling, retailing </li></ul><ul><li>Many states require wine to pass through all 3 levels (some exceptions) </li></ul><ul><li>About half of states prohibit direct shipment from out-of-state sellers to consumers </li></ul><ul><li>7 states consider it a felony </li></ul><ul><li>About 30 states permit direct shipment from in-state sellers to consumers </li></ul>
  4. 4. Virginia and Direct Shipment <ul><li>Banned interstate but allowed in-state wineries to ship direct to consumers </li></ul><ul><li>Bolick v. Danielson (2002) invalidated Virginia’s law </li></ul><ul><li>Virginia legalizes interstate direct shipping as of July 2003 </li></ul><ul><li>Shipper must register with state and remit taxes </li></ul>
  5. 5. Not everyone can ship to VA … <ul><li>Muscat dessert wine </li></ul><ul><li>Reply to: [email_address] </li></ul><ul><li>Date: 2005-11-15, 9:31AM EST </li></ul><ul><li>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 </li></ul><ul><li>this is in or around Montgomery Village, MD </li></ul>
  6. 6. Our Wine Sample <ul><li>Wine and Spirits Survey of Top 50 selling wines in restaurants (83 bottles in 2002, 78 in 2004) </li></ul><ul><li>Price and availability gathered via Northern Virginia store visits, Winesearcher.com, winery web sites </li></ul><ul><li>Summer 2002 and Summer 2004 </li></ul><ul><li>Shipping cost data from UPS </li></ul><ul><li>Bricks-and-mortar transport cost uses auto mileage rate </li></ul><ul><li>Sales tax omitted for both </li></ul>
  7. 7. Analysis of 2002 data <ul><li>Price savings (including shipping costs) </li></ul><ul><ul><li>8-13% on wines costing more than $20/bottle </li></ul></ul><ul><ul><li>20-21% on wines costing more than $40/bottle. </li></ul></ul><ul><li>Increased variety </li></ul><ul><ul><li>15% of a sample of popular wines available online were not available in Northern VA wine stores. </li></ul></ul>
  8. 8. Why? <ul><li>Ability to search vastly larger # of sellers nationwide </li></ul><ul><li>Cost to wholesaler of handling small amounts of lesser-known wines may be prohibitive </li></ul><ul><li>Online sellers may avoid some bricks-and-mortar costs </li></ul><ul><li>Wholesaler market power due to franchise regulation </li></ul><ul><ul><li>Primary area of responsibility </li></ul></ul><ul><ul><li>Termination only for “good cause” </li></ul></ul><ul><li>Tax evasion unlikely a big factor </li></ul>VA excise tax on 750 ml 30 cents 2002 Online savings on bottle costing more than $20 $4.40-$7.19
  9. 9. Variety: 2002 vs. 2004 <ul><li>“ No wholesaler worth his salt would fail to market any quality product for which a demand can be demonstrated” </li></ul><ul><ul><li>Boyden Gray, representing WSWA at FTC workshop in 2002 </li></ul></ul><ul><li>2002: 15% of wines available online not found in bricks-and-mortar stores </li></ul><ul><li>2004: 12.5% of wines available online unavailable in bricks-and-mortar stores </li></ul><ul><ul><li>Following repeal of direct shipment bans, some wines still unavailable </li></ul></ul><ul><ul><li>Not significantly different from 2002 </li></ul></ul>
  10. 10. Lowest posted price: 2002 vs. 2004 72 99.99 7.69 15.12 22.00 Lowest online price 2004 63 89.99 7.99 15.88 24.21 Lowest offline price 2004 79 129.99 7.97 20.98 25.97 Lowest online price 2002 68 169.99 8.49 23.92 28.29 Lowest offline price 2002 N Max Min Stand Dev Mean
  11. 11. Percentage price spread, 2004 (excludes shipping costs) <ul><li>(cheapest bricks and mortar price bottle i)-(cheapest online price bottle i) </li></ul><ul><li>(cheapest bricks and mortar price bottle i) </li></ul><ul><li>Average 8.97 percent less online </li></ul><ul><li>< $20 bottles are 7.6 percent less </li></ul><ul><li>≥ $20 bottles are 10.15 percent less </li></ul><ul><li>≥ $40 bottles are 21 percent less </li></ul>
  12. 12. Did Virginia’s Law Matter? Price spread is at least 6 points (40%) lower in 2004 % spread is higher for more expensive bottles May have fallen more for cheaper bottles No difference based on bottle popularity
  13. 13. Future Research <ul><li>Have prices fully converged? </li></ul><ul><li>What does variability within the online and offline categories tell us about competition? </li></ul><ul><li>Who’s selling the least expensive online bottles? </li></ul>

×