The demand for wine in ontario and the phasing-out of discriminatory mark-ups

Abstract

Two demand systems incorporating habit formation and time-varying parameters but using two different product differentiation schemes are estimated to analyze the demand for wine in Ontario and assess the effect of complying with a GATT ruling calling for the phasing-out of a 65% discriminatory mark-up differential between domestic and foreign wines. Four different scenarios by which Ontario could abide by the GATT ruling are simulated and compared. The scenario chosen by the Ontario government generates the most revenues but it also involves the largest decline in the demand for domestic wines.