The demand for wine in the USA

Purpose – The purpose of this paper is to investigate the demand for wine and provide insight into the behavior of USA wine consumers. Design/methodology/approach – This paper uses a fixed effect, instrumental variable approach to estimate the demand for wine in the USA, correcting for endogeneity inherent in demand estimation by using grape prices as the instrument. Findings – Demand for the six top selling red wines and six top selling white wines was estimated. While the law of demand is confirmed, differences were found in the price elasticity of demand by varietal and price point. Also, these wines are found to be normal good as defined by economic theory and the results generally hold across color, varietal and price segment. There was a greater willingness of red wine drinkers to switch to white wines than white wine drinkers to switch to red wines. Practical implications – No statistically significant cross price effects were found. Originality/value – This paper provides an important contribution to the current literature by disaggregating the demand for wine by color, major varietal and price segment to analyze cross price effects.