Demand under product differentiation: an empirical analysis of the US wine market*

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Oversupply has led to a number of perplexities for the Australian wine industry in recent times. When disaggregated from the industry level, however, the problem can be better described as a range of attribute‐specific disequilibria. To date, the solutions to this problem have predominantly revolved around supply‐side policies of reducing output through crop thinning or vine pulling. By contrast, this paper focuses on the demand side and argues that the disequilibria may be reduced by gaining a better understanding of the demand for Australian wine. A discrete choice model of product differentiation is used to estimate the demand for wine in Australia's second largest export market, the United States. Implications of the analysis are explored.