Abstract
AbstractThis article examines how selected attributes of Bordeaux fine wines (producer, vintage, quality, bottle size, case, flaws, and transaction volume) affect prices in three types of trading venues: auctions, electronic exchange, and the over-the-counter (OTC) market. The findings indicate a price differentiation across the venues. Wine aging leads to relatively higher prices at auctions than on the electronic exchange or the OTC. There is a nearly linear relationship between prices and wine ratings, the strongest of which is found in the case of auctions. The bottle size effect is mostly positive for supersized formats and is the strongest on an electronic exchange and the weakest at auctions. The transaction volume negatively affects wine prices in all the trading venues. The simulation results facilitate the construction of more realistic trading models and may help traders make more informed decisions on the choice of a trading venue, depending on the wine characteristics. (JEL Classifications: D40, G12, Q14, L66)
Highlights
Fine wines have recently become increasingly popular consumption goods or investment assets, with the market estimated to be worth US$5 billion per annum (Zimberoff, 2018)
Based on the market microstructure theory (Madhavan, 2000; de Jong and Rindi, 2009) and the market standard implemented by the world’s leading fine wine exchange—Liv-ex, all of these venues may be grouped into three major market types: (1) auctions (A) with a bidding mechanism involved in the pricing process, (2) an electronic exchange (L) with an order-driven trading platform, and (3) the OTC market (O) with offexchange bilateral B2B or B2C trades (Czupryna and Oleksy, 2018; Czupryna, Jakubczyk, and Oleksy, 2020a)
The results provide a set of interesting insights about the process of fine wine price formation across the specified trading venues
Summary
Fine wines have recently become increasingly popular consumption goods or investment assets, with the market estimated to be worth US$5 billion per annum (Zimberoff, 2018). Wine traders themselves do not constitute a homogenous group either They include both utility-driven and profit-driven traders, who differ in terms of trading motives, scale, and frequency of operations (Dimson, Rousseau, and Spaenjers, 2015; Fernandez-Perez et al, 2019). The professional traders are primarily driven by economic motives as opposed to hedonic ones, so they are more likely to trade on an organized wine exchange that provides the opportunity for continuous and anonymous trading, contract standardization, cost efficiency, higher market liquidity, or volatility reduction. Professional wine traders and investors trade in the OTC market, where they interact with both other wine-based commercial operators (B2B) or hedonically motivated end-users (B2C)
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