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Why is there a Home Bias? A Case Study of Wine*

Published online by Cambridge University Press:  08 June 2012

Richard Friberg ,
Robert W. Paterson  and
Andrew D. Richardson
Richard Friberg
Affiliation:
Stockholm School of Economics and CEPR, Stockholm School of Economics, PO Box 6501, SE-113 83 Stockholm,Sweden, email: nerf@hhs.se (corresponding author).
Robert W. Paterson
Affiliation:
Industrial Economics Inc., 2067 Massachusetts Avenue Cambridge, MA 02140–1337. email: (rwp@indecon.com)
Andrew D. Richardson
Affiliation:
Department of Organismic and Evolutionary Biology, Harvard University, 22 Divinity Avenue Cambridge MA 02138. email: arichardson@oeb.harvard.edu
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Abstract

Domestic products have a disproportionately high market share on many goods markets. We examine the contribution of preferences to such “home bias”, using detailed data on wine sales in New Hampshire (weekly sales by brand by store for one year). In counterfactual simulations, where we use the same set of products as currently available, the U.S. market share falls from 58 percent to 38 percent if all country-of-origin effects are set equal. Home bias on this market is not explained by higher marginal costs for imports or by lesser store coverage of imported brands. The evidence rather points to higher foreign fixed costs of entry, coupled with a preference for U.S. wines, as the main sources for the high domestic market share. (JEL Classification: F12, F14, L13, L66)

Type
Articles
Information
Journal of Wine Economics , Volume 6 , Issue 1 , 2011 , pp. 37 - 66
Copyright
Copyright © American Association of Wine Economists 2011

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