The Economics of Direct Wine Shipping

The most significant barriers to online wine sale are state laws that prohibit direct-to-consumer wine shipping. In 2003, Virginia legalized interstate direct shipment, providing an opportunity to test whether these laws significantly affect competition. Previous analyses found that Virginia's direct shipment ban deprived consumers of greater variety and lower prices available online; legalization reduces the spread between online prices and prices at brick-and-mortar retailers in Northern Virginia. We compare online and offline prices from 2002 and 2004 that include shipping and transportation costs, and we find that after accounting for these costs, the online offline price difference had fallen but not disappeared. On average substantial price savings were still available online for more expensive wines, which constitute almost half the sample. It is unclear whether the remaining price difference reflects a lag in adjustment to the change in law, legitimate competitive advantages of bricks-and mortar wine shops, or aspects of Virginia's law that make online competition less robust than it could be. 

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