Wine Demand, Price Strategy, and Tax Policy

Oregon wine producers recently have developed a niche in the market for premium wines, despite California's established quality image and productive capacity. In Portland, Oregon, the two states' wines are strong demand substitutes for one another. However, the red and white wines of each state are complementary, implying, for example, that if the price of Oregon reds rises, the demand for Oregon reds and Oregon whites is reduced. Red wine demands are much less sensitive to price changes than are white wine demands, corroborating the view that red wine consumers have more discriminating tastes than do white wine consumers. Increases in the state wine tax would bring very little deadweight loss: the dollar value of consumers' utility losses would not greatly exceed the state's revenue gain.