How heterogeneous wine lots result in a price discount relative to homogeneous lots

Abstract

PurposeThe purpose of this study is to determine whether the fine wine market is efficient between homogeneous lots and heterogeneous lots.Design/methodology/approachAuction price data for homogeneous (or solid) lots of fine wines was analyzed to create price prediction models. Those models were used to predict the expected auction price for the bottles within heterogeneous lots. Lastly, models were created to explain and predict the differences between expected and realized prices for heterogenous wine lots.FindingsThe results show that large inefficiencies exist. The more complex and expensive the heterogeneous lot, the greater the discount relative to what would have been realized if the bottles had been sold individually. This discount can exceed 50% of the expected auction price.Practical implicationsHeterogeneous lots may arise as a practical requirement from the auction house. Restaurant buyers probably have little interest in such lots because of the inclusion of wines the restaurant will be unable to sell. Collectors may be uniquely positioned to benefit from this price discount.Originality/valueThese results are unique in the literature, because the price dynamics of heterogeneous (or mixed) lots of fine wines have not previously been studied.