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Battle of the Corks

May 2, 2010

This great piece in the WSJ reflects what Austrians have been saying for decades. There is no need for governments to break up natural monopolies, the market will take care of that when the consumers’ needs aren’t being fulfilled.

 

According to the article, cork producers had a huge monopoly and weren’t responsive to complaints about “corked wine.”

“By the 1990s, retailers and wineries were clamoring for a solution to wine taint but the cork industry didn’t respond. “No industry with 95% to 97% market share is going to see its propensity to listen increase—and that’s what happened to us,” says Mr. de Jesus from Amorim.”

Their complacency opened the door for competitors to find a way to produce a viable synthetic cork.

Mr. Noel and other plastics innovators realized was that they could use new technology to make a new kind of closure. Plastic corks had been tried in the past—but were largely rejected because they were made of solid plastic, which can be difficult to insert and extract and can leave gaps around the edges that are prone to leaks.

The synthetic cork industry rapidly stole marketshare while the indolent natural-cork industry stood by.

“Synthetics solved a problem,” says Mark Coleman, director of business development for Neocork, founded by investors representing five California wineries and now selling stoppers in 22 countries. Mr. Coleman says the U.S. in particular embraced plastic: He estimates half of the top 30 selling brands in the U.S. now use synthetic corks

The natural-cork industry now recognizes the threat posed by both screw-caps and synthetic corks and is conducting extensive research into better bottling & corking techniques while launching a massive campaign to win back users.

“For centuries winemakers have simply filled bottles by gravity and then popped in a cork. And by and large, they have gotten away with it,” the magazine noted. It then delved into the latest research, some coordinated by Nomacorc, which is focused on studying what happens to wine once it’s bottled. “Enhanced knowledge about the interaction between oxygen and wine is likely to result in more wines reaching consumers in optimal condition, which has to be a good thing,”

The wine industry was once at the mercy of a seemingly invincible monopoly that was unresponsive to consumer demands. Now consumers, retailers and vineyards have good alternatives to natural cork. The damage done by competitors forced the monopoly to innovate, research and respond to consumers. All of this was accomplished without any government swooping in to save us with legislation, regulation, nationalization or trust-busting; its not a miracle, its the market.

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