Market and Nonmarket Barriers to Internet Wine Sales: The Case of Virginia

Abstract

We discuss the political and legal environment surrounding Internet wine sales, and consider the arguments in the debate over direct shipment bans on wine by investigating the wine market in the Northern Virginia suburbs of Washington, DC. Using a sample of wines identified by Wine and Spirits magazine's annual restaurant poll, we find that 15 percent of wines available online were not available from retail wine stores within 10 miles of McLean, Virginia during the month the data were collected. Our results also indicate that Virginia's direct shipment ban, which was in place until 2003, prevented consumers from purchasing some premium wines at lower prices online. Aggregate cost savings depends on the consumer's shopping strategy, the price per bottle, the quantity of wine ordered, and the shipping method chosen. For the entire sample, online purchase could result in an average savings of as much as 3.6 percent or an average premium of as much as 48 percent. A comparison shopper who considers both online and offline retailers could save an average of 1.6-9.7 percent. These results help explain why consumers and producers have found it worthwhile to challenge interstate direct shipment bans, which tend to benefit wine wholesalers.

Wine Economics

“…In addition, Gokcekus and Nottebaum (2012) find that states with little tax revenue, proxied by the fraction of federal aid received, tend to prohibit direct wine shipments. Wiseman and Ellig (2004) investigated wine prices in Virginia and concluded that the prohibition of out-of-state online sales has resulted in a 10% increase in prices. When the state of Virginia legalized direct wine shipping to consumers from out-ofstate sellers in 2003, not only the price level but also the retail price variance among retail outlets decreased dramatically (Wiseman and Ellig, 2007).…”

Price Effects and the Commerce Clause: The Case of State Wine Shipping Laws

“…Putting aside these contributions to the literature on alcohol regulation, our work builds most directly on a series of papers by Wiseman and Ellig (, ) that analyzed the impacts of bans on (and subsequent legalization of) direct wine shipment. More specifically, Wiseman and Ellig () found that when interstate direct shipment was illegal in Virginia, online prices of premium wines were lower than prices in northern Virginia bricks‐and‐mortar stores, and online variety was greater. A follow‐up study found that repeal of Virginia's ban on interstate direct wine shipment corresponded to the reduction in the average online‐offline price differential by 40 percent (Wiseman & Ellig ).…”

“…The current study builds directly on these works to assess the impacts of the types of laws that have been passed in the wake of Granholm v. Heald by revisiting the analysis in Wiseman and Ellig (, ) to analyze how (if at all) their results, in regard to price effects, would change if the State of Virginia had adopted some of the laws that are currently found in other states today: laws that might permit some direct interstate wine shipment but limit the entities that can ship. Perhaps it is the case that only allowing direct shipment by wineries, or wines produced by smaller wineries, provides most of the potential consumer benefits, and the remaining restrictions are primarily nuisances.…”

“…In 2003, the state adopted a permit system that allowed any person licensed to sell wine or beer in his or her home state to sell and ship directly to Virginia consumers, provided that the seller registers with the state, pays a registration fee, agrees to remit sales and excise taxes, and ships via a common carrier that verifies the recipient's age and requires an adult's signature at delivery. Wiseman and Ellig (), which drew on data that were collected one year before the state changed its law (i.e., 2002), found that Virginia's ban on direct wine shipment from out of state deprived northern Virginia consumers of access to some highly popular wines and prevented them from enjoying significant price savings on more expensive wines.…”

Beer Advertising and Marketing Update: Structure, Conduct, and Social Costs

“…The changing nature of the states' three-tier systems and related regulatory issues is a topic that deserves to be closely followed by industrial organization economists. 15 These cases involve two constitutional issues (Wiseman and Ellig, 2004). First, the "dormant" Commerce Clause prohibits economic protectionism that favors in-state interests and thus limits how that states can regulate alcohol under the Twenty-First Amendment.…”