Legislative Action, Market Reaction and Interstate Commerce: Results of Virginia's Natural Experiment with Direct Wine Shipment

Abstract

We investigate the impact of the commerce clause of the U.S. Constitution on market competition by focusing on recent changes in state laws governing interstate direct shipment of alcohol. In 2003, Virginia legalized direct wine shipping to consumers from out-of-state sellers. By 2004, the average price difference between online sellers and bricks-and-mortar stores in Northern Virginia was approximately 26-40 percent lower than in 2002. These findings are consistent with the hypothesis that removal of the interstate shipping ban increased competition in the bricks and mortar world, contributing to lower prices. More broadly, they illustrate how the elimination of interstate trade barriers, consistent with the intent of the commerce clause, facilitates efficient markets. Our findings serve as a guidepost to policymakers in various states who need to make their laws conform to the Supreme Court's 2005 ruling striking down discriminatory direct shipment bans.