Economic Regulation and the Wine Industry

There has been a significant amount of national attention recently focused on interstate wine regulation. Currently, many states directly or functionally prohibit interstate wine shipments. In six of these states, a conviction constitutes a felony. While Virginia does not ban wine shipments from other states, it does have regulatory limits in place. In March of 2004, the Federal Trade Commission’s (FTC’s) Department of Economics provided comments, upon the request of the state of New York, as the effects of, "bills [that] would allow out-of-state vendors to ship wine directly to New York consumers if the vendors comply with certain regulatory requirements, such as labeling delivery packages and reporting sales to state authorities. Some concerns included the effect on minors as well as the effect on the wine market. The FTC’s comments, which can be viewed from the link in the following press release, concluded that removing these regulations would help both consumers and the industry. The study indicated that removing the current regulations would lead to lower wine prices, especially for many fine wines, and that there was little reason for believing that minors would be able to acquire wine at an increased rate. The wine issue, however, is still one that the nation’s wine consumers are contending with, as shown by the high number of states that still employ regulations described by Jon Bonne of MSNBC as, “rigid rules of the Prohibition-era system.” Why are these regulations still in place if they are hurting the industry and consumers? Lobbyists contend that, “these rules are the best way to ensure public safety, and pose no threat to the wine industry's rapid expansion.” Let’s think back to our theories of regulation. Clearly, this statement alludes to the reasoning that regulation benefits some subset of society. And yet, the FTC, George Stigler, and I would disagree. Stigler purported that all regulation in place was supported by industry. So, is it really public concern that holds these regulations in place or some industry? The quote from above was made by none other than a state liquor wholesaler. The wine-regulations effectively provide a barrier to entry for wine, which is most likely viewed by these liquor wholesalers as an adequate substitute for their product. Interstate wine sales and the legality of shipping barriers is currently being review by the Supreme Court.