July 2, 2004

Market and Nonmarket Barriers to Internet Wine Sales

  • Jerry Ellig

    Research Professor, George Washington University Regulatory Studies Center
Key materials
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This working paper was published in Business and Politics.

Summary

Internet wine sales and direct shipment to consumers have generated a significant policy controversy that pits consumers and wineries against wine wholesalers and officials in states that ban out-of-state direct shipment to consumers. In the term beginning October 2004, the U.S. Supreme Court will even consider whether state laws banning direct shipment from out-of-state sellers but permit it from in-state sellers violate the Constitution’s Commerce Clause or are permissible under the 21st Amendment.

This study discusses the political and legal environment surrounding Internet wine sales, and considers the arguments of stakeholders in the debates over the appropriateness of direct shipment bans. These arguments are evaluated by investigating the wine market in the Northern Virginia suburbs of Washington, DC.

Key findings include:

  • 15 percent of a sample of "highly popular" wines (from Wine and Spirits magazine’s annual restaurant poll) that were available online were not available from retail wine stores within 10 miles of McLean, Virginia at the time the data were collected. 
     
  • Virginia’s direct shipment ban, which was in place until 2003, prevented consumers from purchasing some premium wines at lower prices online.
  • 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, depending on the quantity and shipping method.
  • A comparison shopper who considers both online and offline retailers could save an average of 8-15 percent by purchasing each bottle from the least expensive source.
  • The difference between the 8-15 percent figure and the figures reported in an earlier Federal Trade Commission staff study employing the same data occur because the original study compared average offline and online prices, while the new study also compares average offline prices to the average prices paid by a comparison shopper who purchases from the least expensive source.
  • These results help explain why producer and consumer interests have found it worthwhile to challenge interstate direct shipment bans, which tend to benefit wine wholesalers.