July 26, 2003

Law - State regulations impact internet trade

Well, I just read a very interesting column by economist Virginia Postrel in a copy of the NY Times I hadn't gotten to yet. Unfortunately, it is from 7/17/03, so it has already passed into NY Times "pay-for-view" land, due to the Times' short-sighted (IMHO) archive policy. In my view, people reading blogs who run across interesting descriptions of NY Times stories are not likely to pay to read them. On the other hand, if they could access the stories through these blog links, the Times would receive the some commercial/advertiser benefits as they do for their currently-available stories. I believe blog-linked acccess is different from research-driven access, and that different economics apply. I'd really like to see a study.

Be that as it may, I can still describe Postrel's column, as I have the newspaper version (I am a Times subscriber) right here in front of me. Headlined "Economic Scene; A look at wine sales over the Internet shows the price of some regulations in the name of consumer protection," the article talks about exceptions to the rule that internet commerce has broken down many local monopolies, such as used book sales. Exceptions include those created by "state regulations passed long before anyone conceieved of electronic commerce." Wine sales is the exception Postrel focuses upon, citing a Federal Trade Commission report titled "Possible Anticompetitive Barriers to E-Commerce: Wine." You may access the 139-page FTC report here. The report begins with this introduction:

Heralded by many as the next industrial revolution, the Internet is transforming the nationís economy. The Internet lets consumers purchase an unprecedented array of goods and services from the convenience of their homes. Local markets are becoming national and international as consumers can find and purchase thousands of goods from thousands of suppliers online, and have those goods delivered to their doors. The product choices range from contact lenses to cars and even caskets. Moreover, perhaps for the first time, consumers can also conveniently purchase a wide array of services from distant sources. For example, consumers can obtain legal and medical advice, realtor services, and education from out-of-state online suppliers. In many instances, these consumers may find lower prices and a greater variety of goods and services online than in bricks-and-mortar stores. Although the Internet can provide consumers with important benefits, online commerce may raise regulatory concerns. Many states have passed laws regulating e-commerce to promote other important public interest objectives, such as protecting consumers from deception and fraud by unscrupulous vendors. These actions, however, also may shield local merchants from out-of-state competition. For example, some states require that online vendors maintain a physical office in the state, while other states completely prohibit online sales or shipments of certain products, such as new cars direct from a manufacturer. Many states also require that outofstate suppliers obtain an in-state license before selling particular goods, like caskets or contact lenses, or services, like medical or legal advice. Some observers question whether the attendant higher prices and loss of variety might outweigh the consumer protection benefits. This dichotomy currently exists in the wine industry. [Emphasis added]
Another FTC page mentioned in Postrel's column, providing access to a number of earlier papers, may be found here.

Posted by Marcia Oddi at July 26, 2003 12:31 PM