Wine Auctions Research Articles

How sample bias affects the assessment of wine investment returns

AbstractWine investment returns can come from overall market trends or price increases with age. Because of the short wine price histories available, market and maturation effects are difficult to separate. Consequently, researchers often obtain dramatically different estimates of investment returns. We find that data sample bias may be the hidden cause of the disparate estimates. In wine auction data, the sample bias refers to a shift in the distribution of which wines are traded as a function of their age. Such sample bias in panel data sampled across many different wine labels can distort the estimation of price increases versus age and consequently impact the estimation of market trends. This analysis shows that segmenting the analysis such that the data panels contain wine labels with similar trading characteristics can lead to a more stable estimation.The analysis here looks at data from Bordeaux, Italy, Australia, and California. An Age-Period-Cohort (APC) analysis is applied to data panels from each region. Then the data in each region is segmented by a measure of popularity in order to reduce sampling bias. Data thus segmented is then re-analyzed to demonstrate the difference in estimating price appreciation lifecycles and market trends.

Sample Spacings for Identification: The Case of English Auctions With Absentee Bidding

This paper presents new nonparametric identification results for ascending auctions with independent private values. The standard identification approach is infeasible in the motivating setting, because absentee bidding conceals the number of bidders. I exploit insights from the statistics literature about the stochastic ordering of adjacent sample spacings. I show how to use such sample spacings to set-identify structural features, using an incomplete model and without knowing all highest bids or the number of bidders. Applying the sample spacing method to a small sample of wine auctions, I show that it identifies informative bounds on policy-relevant counterfactuals. It turns out that Sotheby's restricts full exploitation of the exclusion principle of optimal reserve prices. As a result, sellers set sub-optimally low reserve prices. They benefit up to 13% from adopting a common reserve price rule equal to 120% of the Wine Department's pre-auction value estimate.

Reducing information asymmetry in the auctioning of non-perishable experience goods: The case of online wine auctions

We highlight the importance of reducing the perceived risk associated with information asymmetry for experience goods. We analyse a major online non-perishable experience good, wine, from the seller's perspective. The mechanism for lowering information asymmetry is the verification service offered by the auctioneer. By focusing on unsold items/lots, the wine and auction characteristics affecting the probability of a sale are identified. Results show that the verification of the wine's provenance increases the probability of sale by 5.7 percent and leads to an expected increase of 5.1 percent in the auction price. When both effects are combined, the increase in the expected revenue of the seller is 7.3 percent. We test and find no evidence of selection bias. Given the heterogeneity in wine prices, a quantile regression analysis shows how the results differ for high-priced wines compared to lower priced wines. Results highlight how the mechanisms to lower the degree of information asymmetry work both in attracting bidders to online auctions and encouraging bidders to submit higher bids.

Book Reviews

A. Alonso Ugaglia of Bordeaux Sciences Agro UMR INRA 1065 SAVE reviews “World Scientific Reference on Handbook of the Economics of Wine,” by Edited by Orley Ashenfelter, Olivier Gergaud, Karl Storchmann, and William Ziemba. The Econlit abstract of this book begins: “Provides an introduction to the main research strands in wine economics. Discusses wine and the natural environment, hedonic analyses of wine prices, wine and finance, wine tastings and competitions, wine and expert opinion, reputation, wine and regulation, wine auctions, supply and its implications, and organization.”

Red obsession: The ascent of fine wine in China

This article uses hammer prices from five global auction houses to analyse the price premium Bordeaux fine wine yielded at Hong Kong wine auctions. We find that fine wine was on average sold at a 19% premium in Hong Kong. We further observe that the Hong Kong premium is not uniform and most pronounced for wines with perfect Parker scores and the most powerful brands. The premium has declined throughout the sample period from 60% in 2008 to a level of 15% since 2012. This can be attributed to the increase in knowledge on fine wine by Chinese customers.

Revisiting the declining price anomaly in wine auctions

This paper investigates the declining price anomaly in wine auctions. The anomaly refers to the observation that when identical lots of wine are sold sequentially in a single auction, prices are more likely to decrease with later lots. Using The Chicago Wine Company's auction data, we find no evidence of declining prices in sequential wine auctions. The results are robust and consistent across wine price ranges.

Revisiting the declining price anomaly in wine auctions

Revisiting the declining price anomaly in wine auctions

Asking prices, selling prices, and anchoring effects

Purpose– Commercial auctions of cultural goods are typically brokerage arrangements where potential buyers may consider pre-sale estimates (PSEs) in bidding. The economic theory suggests that PSEs should provide honest guidance – winning bids should, on average, equal PSEs – but available research from fine art and antique auctions finds otherwise. The authors examine this relationship for commercial auctions of fine wine – items which, unlike fine art and antiques, are widely traded so that bidders may more knowledgably interpret PSEs.Design/methodology/approach– The paper examines the relationship of PSEs to winning bids econometrically for an iconic wine widely traded in several Chicago wine auctions, a novel setting for this analysis.Findings– The relationship of winning bids to PSEs differs significantly between two neighboring auction houses, perhaps reflecting differences in how they do business; neither’s PSEs have a straightforward relationship to winning bids; PSEs have an influence on winning bids independent of a lot’s characteristics, reflecting perhaps an anchoring effect; the analysis suggests broad bidding strategies (with counter-strategies implied) and might guide auction house lot selection and ownership if more complete data became available.Originality/value– The role and reliability of PSEs in auctions of other cultural goods, representing most of the literature, has limited application to auctions of fine wine whose markets differ categorically from those of other cultural goods.

Keys to Creating Atlanta's Top Charity Wine Auction

Keys to Creating Atlanta's Top Charity Wine Auction

MOŽNOSTI DISTRIBUCE VÍNA DROBNÉHO VINAŘE KE KONEČNÉMU SPOTŘEBITELI

Distribution can be defined as a way of goods from producer to consumer. In wine production industry there exist several distribution channels, through which wine is distributed to the final consumer. Aim of this paper is to identify and compare advantages and disadvantages of particular distribution channels for wine sales related to a small wine-producer.Distribution of wine to the final consumer is done through dealers represented by retail chains, specialized wine-shops, hotels, and restaurants. In a smaller scale it is done through internet sales, own outlets and wine auctions. According to the research of Focus agency, Marketing & Social Research, done in 2009, customers buy wine mostly in retail chains and decide on sort and quality of wine directly at the moment of purchase. Selection is based except wine quality also on the shape of the bottle, etiquette, and also cork (consumers explicitly prefer cork, and the screw top rather discourages). Certain part of customers – specifically those, who are more acquainted with wine – buy wine in special wine-shops. The research shows a decrease of direct wine-sales.When using services of independent trade organizations, producers have to control the intensity of commercial activities and knowledge of technical characteristics of products. Small wine producers, though, do not have to use this distribution channel, and can focus only on direct sales. For some small wine producers, specifically those operating in the areas with an extended possibility for wine-tourism, this channel can be more suitable and effective than using retail chains. This way of distribution does not require extensive start-up investments, it is directly dependent on producers own effort, and can be done as a supplementary activity to the main source of income.Regardless the particular choice of a distribution channel by a small wine producer it is necessary to be judged not only from the viewpoint of its advantages and disadvantages, but also by a detailed analy­sis of costs of sales.

Reversals in Wine Auction Prices

AbstractThis paper investigates reversals in wine auction prices following a series of strong positive and negative returns. Using the Chicago Wine Company's auction data, we find evidence of reversals after extreme wine price changes. There is a clear asymmetry in the market reaction to wine price increases and declines. Wine price declines after strong price increases are not, in general, as significant as wine price increases after strong price declines. The strongest reversal occurs for wines that have declined in price by more than 30 percent. (JEL Classifications: D44, G14)

A Study of the Evolution of High-End Wines in Switzerland

In this paper, we analyze the evolution of fine wine prices over the period 2000-2010 on the Swiss market. We first estimate a fine wine index with several sub-indices (e.g. Bordeaux index, First growth index) using hand-collected hammer prices from Steinfels – the leading wine auction house in Switzerland. We then study the evolution of these wine indices. Not surprisingly, we find that high-end wines have achieved impressive returns over the last decade, with first growths from the Medoc being the very best performers. They have significantly outperformed Swiss stocks whilst maintaining a weak correlation with traditional asset classes like equities and bonds. These results confirm previous evidence that fine wine can be considered as an appealing alternative investment vehicle.

Planning a Successful Wine WMS for Hong Kong

Recent years, Hong Kong has been the world’s second largest wine auction centre after New York, with wine trading, warehousing and other related activities developing robustly. However, some standards of wine storage management, especially in a WMS implementation for wine, have raised most concerns for local traders, agents, warehouses, distributors, even some multi-national logistics companies, as gives rise to many issues concerning efficiency, product and service quality, customer satisfaction, etc. So this paper aims to apply the best practices of a WMS implementation of Li & Fung Group into the wine warehouse and recommend some standards from data entry to process control concerning inbound, storage, outbound and distribution. Moreover, twelve elements determining a successful WMS implementation will be listed for Hong Kong companies and industry reference.

The Expanding World of Sigrid Cerf

The Expanding World of Sigrid Cerf

Who pays brokers' commissions? Evidence from fine wine auctions

As brokers between consignors and buyers, auction houses routinely charge successful bidders a broker's commission—a percent of their successful bids. This study considers the extent to which differences in brokers' commissions are reflected in differences in winning bids in fine wine auctions, drawing upon an unusually detailed collection of auction data for Bordeaux wine and providing a 'natural experiment' for testing the incidence of brokers' commissions. The data allow not only a test of the extent to which the commission charged to buyers is reflected in the buyers' bids but also a reasonably comprehensive explanation of variations in wine auction prices. The results indicate that buyers' premia are capitalized fully into bids so that bids fall accordingly with obvious consequences for the proceeds from the sale. Copyright 2009 , Oxford University Press.

‘Insofar as the Ruby Wine Seduces Them’: Cultural Strategies for Selling Wine in Inter-war Burgundy

AbstractBurgundians developed new cultural strategies to market their wines during the inter-war years. Regional leaders, cultural intermediaries and the wine industry collaborated to overcome overproduction, prohibition and foreign as well as regional competition by exploiting the concept ofterroirto develop a repertoire of popular festivals such as the Gastronomic Fair of Dijon, the Paulée of Meursault, Saint Vincent parades, an annual wine auction at the Hospice in Beaune and a Burgundian Pavilion at the 1937 World's Fair in Paris. These drew attention to the unique qualities of their wines and suggested how they might be best consumed. This aggressive marketing strategy was so successful that it became a model for French agricultural products promoted through thesystème d'appelation d'origine controlée. The result united natural resources, historical memory, marketing strategies and cultural performance into an imaginative and enduring form of commercial regionalism.

On the Revelation of Provenance in Online Wine Auctions

AbstractThis paper examines the social desirability to disclose pertinent information to participants in an optimal auction environment. In particular, we consider aspects of information which will affect all potential buyers in a uniform fashion. In the case of wine, such information may be interpreted as an unobservable dimension such as the quality or the storage condition of a bottle of wine. We show that when the participants in the auction are symmetrically uninformed in such a dimension, it may be socially optimal not to resolve this common uncertainty. Under the sufficient conditions provided to generate this outcome, efficiency will be restored in the optimal auction. (JEL Classification: D44, D82)

Wine auctions: More explanations for the declining price anomaly

Extant research has observed a declining price anomaly in a study of wine auctions, also called the afternoon effect: in sequential English auctions of wine, the price reduces. Previously suggested explanations include absentee bidder effect, option effect with non-decreasing absolute risk aversion, decreasing quality effect, the varying size and quantity effect and the synergy or complementary effect. To this list, we add some economic and behavioural explanations: the diminishing consumer's surplus explanation, the transactions cost of re-trading, the subsequent information explanation, new collusion formation and the loss aversion explanation. The list of effects or explanations is sufficiently long to question whether declining prices are an anomaly.

The Buyer's Option in Multi‐Unit Ascending Auctions: The Case of Wine Auctions at Drouot

This paper studies multi‐unit ascending (English) auctions with a buyer's option. The buyer's option gives the winner of an auction the right to purchase any number of units at the winning price. We develop a theoretical model and derive the optimal strategies for the bidders. The model predicts various behavioral implications (e.g., the winner never exercises the option, the price declines…) that are tested using a unique data set on wine auctions held at the Paris‐based auction house Drouot. We also analyze why the buyer's option is used. Estimating the model in a structural econometric way, and using counterfactual comparisons, we find that the buyer's option does not affect the seller's revenue (relative to a system where the units are auctioned sequentially without the option). Drouot, however, saves a lot of time with the option and this effect represents a considerable amount of money. The time‐saving effect seems thus to be the primary purpose of the buyer's option.

The Impact of Information on Wine Auction Prices: Results of an Experiment

This paper reports the results of an experimental wine auction. Participants of the experiment were randomly assigned to three rooms. In each room four wines had to be evaluated, but the level of information to which participants had access differed across rooms. After the evaluations, the wines were sold sequentially, by four separate Vickrey auctions with secret reservation prices. We fi nd that certain socio-economic characteristics such as gender, income and consumption habits, have a signifi cant impact on the willingness to pay for wine, while others such as age and nationality, do not. We also fi nd that once individuals have read the label characteristics and extracts from wine guides, the taste of the wines does not have an additional impact on willingness to pay. Conversely, if individuals who have only tasted the wines blindly are informed about the wine characteristics and opinions from experts, their willingness to pay increases substantially.