Competitive Impacts of Wine Regulations: Comparisons of Old World and New World Wine Producers
Regulations of the wine industry vary widely by country and sometimes even by region within a country. It is often noted that regulations governing the growing of wine grapes, the production and the marketing of wine are more stringent in the “Old World” countries of Europe than in “New World” countries and that these differences contribute to explain the dramatic changes the industry currently undergoes, such as the decreasing importance of old producing regions to the benefit of the new world ones. This research begins with an overview of such regulations in four countries, two from the “Old World”, France and Germany, and two from the “New World”, Australia and the United States (California) and illustrates differences in typical forms and degrees of regulation. We then evaluate economic rationales for the existence of the regulations in terms of interests to the consumer, the producer or the state. Hereby, we differentiate between the public interest theory of regulation and the private interest theory of regulation.
A second part of the research then considers how underlying market conditions have changed in recent years with the globalization of the wine sector and with the dramatic decline in demand for wine among traditional consumers, such as France, in order to appreciate the current pressure on wine regulations. We then show, in a supply and demand framework accompanied by numerical simulations, how in this new context the welfare impacts of regulations change. The presence of the new competitors erodes the dominant market positions traditional wine regions and challenges the producers in the heavily regulated countries.