Heritage Foundation Leadership for America

Many states impose barriers to trade in an effort to insulate in-state producers from out-of-state competition. Fortunately, some of these have been ruled unconstitutional because they inhibit interstate commerce (an approach that courts should extend to electricity and health insurance markets!). What happens when government-imposed cartels are dismantled? Not surprisingly, prices fall. The Wall Street Journal comments on a new paper showing big price reductions when Virginia reluctantly allowed competition from out-of-state wineries:

...in addition to violating the Constitution's Commerce Clause, there's also evidence that direct shipping bans reduce competition and inflate prices. That's the conclusion of a new paper by Alan Wiseman of Ohio State University and Jerry Ellig of George Mason University, who conducted a useful analysis of Virginia's wine market. ...They found that "while average bricks-and-mortar prices still exceeded average online prices in 2004, the size of the price difference decreased by nearly 40% compared to 2002," when direct wine shipments were illegal. "More broadly speaking," write the authors, "this result clearly supports theories that predict how government mandated market restrictions inhibit competition and facilitate higher prices, and how the removals of those bans will facilitate more efficient market outcomes."

--- Daniel Mitchell Ph.D.