Working Paper No. 90
Competitive Exclusion with Heterogeneous Sellers: The Case of State Wine Shipping Laws
Jerry Ellig & Alan Wiseman
Several states impede direct-to-consumer wine shipment from out-of-state sellers by excluding out-of-state retailers from direct shipment or by enacting production caps that prevent direct shipment of wines from wineries with annual production above a designated number of gallons. We explore the economic effects of these two barriers to competition by combining new data on winery prices and production with price data employed in previously-published research. Principal findings include: (1) Direct shipment by out-of-state wineries is sufficient to maximize the variety of wines available to consumers. (2) Excluding online retailers from direct shipment deprives consumers of access to significant online price savings and reduces competitive pressure on local wine merchants by reducing the number of wines for which online savings are available. (3) Low production caps in the 20,000-30,000 gallon range are tantamount to a ban on direct shipment of the wines in our sample. Higher production caps of 150,000-250,000 gallons allow direct shipment of wines with significant online price savings but, paradoxically, prevent direct shipment of the wines most likely to induce price-cutting by offline stores. (4) Combining exclusion of retailers with a production cap can either be redundant or more restrictive than either policy alone, depending on the level of the cap.