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FTC: E-commerce Lowers Prices, Increases Choices in Wine Market

Posted by Mr. L. Rothchild on 2004-03-20 20:53:54 (3476 views)

[Wine talk online]
Complete Report by The Federal Trade Commission Released July 3, 2003

Empirical Analysis Finds that Direct Shipping Improves Consumer Welfare;
States Have Less-Restrictive Means of Limiting Sales to Minors than an Outright Ban

A Federal Trade Commission staff report released today concludes that e-commerce offers consumers lower prices and more choices in the wine market, and that states could expand e-commerce by permitting direct shipping of wine to consumers. The empirical study finds that state bans on direct shipping prevent consumers from saving as much as 21 percent on some wines and from conveniently purchasing many popular wines from suppliers around the country. FTC Chairman Timothy J. Muris stated, “E-commerce can offer consumers lower prices, greater choices, and increased convenience. In wine and other markets, however, anticompetitive barriers to e-commerce are depriving consumers of those benefits.”

In addition to its findings regarding competition, the report concludes that states can limit sales to minors through less-restrictive means than an outright ban on direct shipping. According to officials from a dozen states that allow direct shipping, these states typically require that a supplier verify the recipient’s age and obtain an adult signature before delivering the wine. Many states also require that a supplier obtain a permit to ship wine to consumers within the state. Of the states that have adopted such less-restrictive safeguards, most report few or no problems with direct shipments to minors.

“This report continues a long FTC tradition of using empirical evidence to analyze policy,” said Todd Zywicki, the Director of the FTC’s Office of Policy Planning. “Before reaching any conclusions, we conducted an economic study and talked to officials in many states that deal with the issue on a daily basis. As a result, we think that policymakers can have great confidence in our findings.” Zywicki further noted, “Ours is a very comprehensive analysis of the direct shipping issue. We gathered empirical evidence on both the competition and consumer protection aspects: the effects of direct shipping laws on prices and variety, and the states’ experiences with direct shipping and underage drinking.”

Key Findings

The report outlines several key findings:

· Consumers can purchase many wines online that are not available in nearby brick-and-mortar stores. An empirical study of the wine market in McLean, Virginia found that 15 percent of a sample of popular wines available online were not available from retail wine stores within 10 miles of McLean. In addition, by banning interstate direct shipments, states limit consumers’ access to thousands of labels from smaller wineries.

· Depending on the wine’s price, the quantity purchased, and the method of delivery, consumers can save money by purchasing wine online. Because shipping costs do not vary with the wine’s price, consumers experience the greatest savings on expensive wines, while brick-and-mortar stores may offer better prices on less expensive wines. The McLean study suggests that, if consumers use the least expensive shipping method, they could save an average of 8-13 percent on wines costing more than $20 per bottle, and an average of 20-21 percent on wines costing more than $40 per bottle.

· State bans on interstate direct shipping represent the single largest regulatory barrier to expanded e-commerce in wine. More than half the states prohibit or severely restrict out-of-state suppliers from shipping wine directly to consumers. Many of these same states, however, allow intrastate direct shipping, such as from in-state wineries and retailers.

· Many other regulations impede e-commerce in wine. These include prohibitions on online orders, very low ceilings on annual purchases, bans on advertising from out-of-state suppliers, requirements that individual consumers purchase “connoisseurs’ permits,” and requirements that delivery companies obtain a special individual license for every vehicle used to deliver wine.

· Citizens are concerned about the direct shipment of wine to minors. Some states have chosen to address this concern in part by banning direct shipment of wine to all consumers, or banning direct shipment from out-of-state sellers. Others have opted for alternatives that are less-restrictive than an outright ban.

· The states that permit interstate direct shipping generally report few or no problems with shipments to minors. Some states have applied safeguards to online sales similar to those applied to brick-and-mortar retailers, such as requirements that package delivery companies obtain an adult signature at the time of delivery. Some states also have developed penalty and enforcement systems to provide incentives for both out-of-state suppliers and package delivery companies to comply with the law.

· Several states that allow interstate direct shipping also collect taxes from those shipments. By requiring out-of-state suppliers to obtain permits, states such as New Hampshire have sought to achieve voluntary compliance with their tax laws. Most of these states report few, if any, problems with tax collection. Other states with reciprocity agreements forgo taxing interstate direct shipments altogether.

Read more here:


Mitchell J. Katz
Office of Public Affairs


Jerry Ellig, Deputy Director
Office of Policy Planning



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