Wine Prices Research Articles

Wine Economics: Emergence, Developments, Topics

Fine wine has a few characteristics that differentiate it from other agricultural commodities and beverages rendering it an interesting topic for economists. Fine wine can regularly fetch bottle prices that exceed several thousand dollars. It can be stored a long time and may increase in value with age. Fine wine quality and prices are extraordinarily sensitive to fluctuations in the weather of the year in which the grapes were grown. Wine is an experience good: that is, consumers often rely on “expert opinion” regarding quality and maturation prospects. This article describes the emergence and the unparalleled rise of wine economics since the 1980s to the present time and sheds light on its three main topics: finance, climate change and the role of expert opinion.

Wine Export Shocks and Wine Tax Reform in Australia: Regional Consequences Using an Economy-wide Approach*

We provide economy-wide modelling results of the national and regional implications of two current challenges facing the Australian wine industry: a decline in export demand, and a possible change in the tax on domestic wine sales following the Henry Review of Taxation. The demand shock causes regional GDP to fall in the cool and warm wine regions, but not in the hot wine regions unless the shock is large. A change from the current ad valorem tax to a similarly low volumetric tax on domestic wine sales causes regional GDP to rise in the cool and warm wine regions, partly offsetting its fall due to the export demand shock, but GDP in the hot wine regions would fall substantially. The switch to a volumetric tax as high as the standard beer rate would raise tax revenue and lower domestic wine consumption by more than one-third. However, it would induce a one-third decrease in production of non-premium wine as its consumer price would rise by at least three-quarters (while the average price of super premium wines would change very little). This would exacerbate the difference in effects of a tax reform on GDP in hot versus warm and cool wine regions.

The price premium for wine quality signals: does retailers' information provision matter?

PurposeThis research aims to explore whether quality signals, such as grape variety names explicitly used by “quality wines produced in specified regions”, affect wine retail prices in different ways in large‐scale retail and specialised shops.Design/methodology/approachTocai wine, which is produced in Northeastern Italian regions and is involved in a dispute with the Hungarian geographical indication Tokaj, is taken as a case study. A hedonic price model has been estimated based on retail prices observed in local markets.FindingsThe research shows that consumers buying at large‐scale retailers are willing to pay a higher price premium for quality signals than those buying in specialised shops, ceteris paribus. For the latter, willingness to pay for quality signals is reduced by the information provided by the specialised shop retailer, which decreases the customer's uncertainty about wine quality; quality signals appearing on wine labels generally have a more relevant positive effect on wine price than brand reputation, confirming the findings available in the current literature.Originality/valueThis paper contributes to the literature by proving, in a real market situation, that consumers are willing to pay a higher price premium for quality signals when information is supplied only by wine labels, as in a large‐scale retail environment, than when it is provided by the assistance of a knowledgeable seller, as in specialised shops. The paper confirms that the information transmitted to the consumer during purchase affects price in a way similar to that reported in the literature for simulated markets in the case of expert consumers.

Fiscalidad y precios en Castilla en el siglo xvii: los precios del vino en Madrid, 1606-1700

AbstractThis article deals with the relations between taxation and prices levels in seventeenth century Castile through an analysis of the influence of royal and municipal taxes on the retail prices of cheap wine in Madrid between 1606 and 1700. First part describes the taxes levied on cheap wine by the Castilian Crown and the town council in Madrid. Both kinds of taxes provided the Royal and the City Treasuries with the most important part of their tax revenues. Second part analyzes how the Royal and the city authorities estimated the monetary value of the taxes and excises levied on this beverage. Lastly, third part shows that the burden of the royal and municipal taxes levied on a litre of cheap wine rose during the period. If in 1606-10 both types of taxes amounted to around 30 per cent of the retail prices of a litre of cheap wine, in the last third of the century this percentage had risen to 60-65 per cent.

Price estimation and economic evaluation of the production cost of red wines produced by immobilized cells on dried raisin berries

Price estimation and economic evaluation of the production cost of red wines produced by immobilized cells on dried raisin berries Argiris Tsakiris1, Kiriaki Sotirakoglou2, Panagiotis Kandylis3, Panagiotis Kaldis1, Constantina Tzia4, Yiannis Kourkoutas31Department of Oenology and Beverage Technology, Faculty of Food Technology and Nutrition, Technological Educational Institute of Athens, Athens, Greece; 2Department of Mathematics and Statistics, Agricultural University of Athens, Athens, Greece; 3Applied Microbiology and Molecular Biotechnology Research Group, Department of Molecular Biology and Genetics, Democritus University of Thrace, Alexandroupolis, Greece; 4Laboratory of Food Chemistry and Technology, School of Chemical Engineering, National Technical University of Athens, Athens, GreeceAbstract: The aim of the study was initially to estimate the price of red wines produced by immobilized cells on dried raisin berries and subsequently to investigate whether the estimated price was sufficient to counterbalance the increased investment and operational costs required for industrial application of the novel biotechnological process. Price estimation of the experimental wines was based on the correlation of sensory quality, determined by a group of trained tasters, and the price of commercial wines available in a certain market. Application of principal component analysis (PCA) provided improved results over simple and exponential regression analysis, as only a part of the relationship between the two variables was represented (68.4% and 75.3%, respectively). However, with PCA the total variance explained by the two components was 100%. Taste was more important than aroma in determining sensory quality, and wine price was mainly affected by sensory quality rather than wine age in the Greek market. The total increase of production cost was estimated to be €0.032/bottle, which is significantly lower than the increase of €2.08/bottle price estimated by PCA for the red wines produced by immobilized cells, due to the improved aromatic potential compared with wines produced by free cells. Hence, profit for the wine industry was estimated to be €1.02/bottle.Keywords: wine market, sensory quality, regression analysis, price, PCA

Hedonic Price for the Italian Red Wine: A Panel Analysis

We use a unique dataset to estimate the hedonic price function for the Italian red wine sold on the Italian market in the period 2006-2008.

Factors that Influence Prices for Cool-Climate Wines: A Hedonic Analysis of the Market for Riesling

The price of wine represents various characteristics that differentiate each bottle, assuming that the majority of consumers use price as a signal of quality. The objective of this study is to analyze the drivers of Riesling prices, since this varietal continues to gain popularity and can be grown in all climates, including cool-climate regions. We expand the use of quality ratings by including interaction terms to express wine-quality and price-quality relationships. The results suggest that higher price premiums are associated with wines that earned high expert rating scores, and this emphasizes the importance of market-perceived quality signals.

Improving Experts' Wine Quality Judgments: Two Heads Are Better than One

AbstractThis paper reports an analysis of data from the “Judgment of Paris,” the 1976 blind tasting of California and French wines that revolutionized the wine world. Using both empirical and analytical methods, I demonstrate that the wine quality judgments of the renowned experts who participated in the Paris tasting would have been improved simply by averaging the quality ratings of two or more of the judges. Moreover, I explore both how many of the Paris judges should be included in the average and which ones they should be. The results have implications for the practical issue of choosing judges to include in tasting panels that award prizes or provide expert advice to consumers, as well as for better understanding the variability in the price-quality association across hedonic wine pricing studies. (JEL Classification: C93)

Measuring the Economic Effect of Global Warming on Viticulture Using Auction, Retail, and Wholesale Prices

In this paper we measure the effect of year-to-year changes in the weather on wine prices and winery revenue in the Mosel Valley in Germany in order to determine the effect that climate change is likely to have on the income of wine growers. A novel aspect of our analysis is that we compare the estimates based on auction, retail, and wholesale prices. Although auction prices are based on actual transactions, they provide a thick market only for high quality, expensive wines and may overestimate climate’s effect on farmer revenues. Wholesale prices, on the other hand, do provide broad coverage of all wines sold and probably come closest to representing the revenues of farmers. Overall, we estimate a 1°C increase in temperature would yield an increase in farmer revenue of about 30%.

Hedonic wine price predictions and nonnormal errors

AbstractThis paper considers using nonnormal error distributions for the hedonic wine price function, to predict “average” wine prices and hence identify over and under‐priced wines. In addition to the log‐normal distribution, the Weibull, gamma, exponential and log‐logistic distributions are employed for a comprehensive data set of over 6,000 Australian wines. Estimates of marginal attribute impacts do differ with distribution employed with the Weibull being the most different. On average for all wines, the log‐logistic distribution produces the most accurate predictions, however, the performance of distributions differs according to price range. Combining the predictions can produce substantially lower absolute errors on average, because of the varying accuracy performance of the distributions. [EconLit citations: L15, D40, C16]. © 2010 Wiley Periodicals, Inc.

Who Killed the WINEFEX?: Autopsy of the Bordeaux Wine Futures Contract

Euronext’s September 2001 launch of the WINEFEX Bordeaux wine futures market quickly turned into a complete fiasco. The purpose of the present study is to analyse the reasons for this failure, the responsibilities of the various actors involved and the effects that this half-baked attempt to wed fine wine and market finance will have in the future. We will ultimately come up with three conclusions: the first will focus on what was an exceptional conjunction of technical errors and bad luck; the second clearly specifies Euronext’s responsibility in this affair; and the third discusses the pessimistic outlook for a viable wine futures market. The original error clearly lies in the technical characteristics of the contract such as it was defined by Euronext. The small face value and the fixed conversion factor between the various grades of deliverable wine largely explains the lack of interest by the three actors who are indispensable to the success of a futures market: branch professionals; speculators; and arbitragers. A second type of error relates to Euronext’s approach. At first, this exchange company misjudged the underlying asset’s volatility (and to be specific the exogenous elements that can cause variations in Bordeaux wine prices in general and in grand cru prices in particular). Even more surprisingly, Euronext executives then totally ignored objections coming out of Bordeaux regarding the WINEFEX’s feasibility. Finally, the third type of error relates to the contract’s launch calendar. Although no one could have predicted the events of 11 September (nor their impact on a contract that had initially been planned for 14 September), the history of futures markets has long taught us that the best time to launch a contract is when a bull market is just at its outset. And yet, a long-term analysis of Bordeaux price cycles already indicated back in early 2001 that the underlying product was coming to the end of its upwards cycle. The WINEFEX’s failure is likely to have two kinds of consequences for years to come: it will undermine the launch of any similar contract, mothballing all plans for wine futures, regardless of their particularities; and it also will force everyone to cogitate over the quasi-ontological general question of whether wines are basically soluble with market finance, and more specifically, whether a grand cru can be wed to a futures markets. “A market is a success when it appeals to investors, speculators and arbitragists all at the same time”. J.M.KEYNES

Do Tasting Notes Add Value? Evidence from Napa Wines

This paper evaluates whether tasting notes - the brief testimony that describes the sensory properties of wines - add value. The analysis is based on a sample of over 2700 recent vintage cabernet sauvignon wines evaluated by Wine Spectator. I estimate a dynamic wine price model to evaluate the marketing effect of the note, controlling for quality measures as well as other wine characteristics. The results indicate that the length of the tasting note exerts a strong positive influence on the wine’s price, even after controlling for quality. A 10 percent increase in the number of characters in the tasting note (about 23 additional characters) contributes about two to four dollars to the price of the wine. Further analysis reveals that the value of the tasting note does not come from the “analytical” words contained in the note but rather, from the more subjective component of it.

Hedonic Price for the Italian Red Wine: A Panel Analysis

We use a unique dataset to estimate the hedonic price function for Italian red wine sold on the Italian market in the period 2006-2008. For each bottle considered, the dataset allows us to know several characteristic such as the price by retail channel (price in supermarkets and in wine shops), label characteristics, chemical analysis, sensorial characteristics and experts’ evaluations. The objective of the analysis is to estimate the importance of the different class of variables on price and through time. The analysis shows that the price mainly depends on the label characteristics of the wine sold; other indicators, even when statistically significant, are quite irrelevant. The producer seems to have a limited market power especially in the large distribution where label characteristics explain about 90% of price formation. For wine shops the single characteristics of each wine seem to be more relevant.

Predicting the Quality and Prices of Bordeaux Wine

AbstractBordeaux wines have been made in much the same way for centuries. This article shows that the variability in the quality and prices of Bordeaux vintages is predicted by the weather that created the grapes. The price equation provides a measure of the real rate of return to holding wines (about 2–3% per annum) and implies far greater variability in the early or ‘en primeur’ wine prices than is observed. The analysis provides a useful basis for assessing market inefficiency, the effect of climate change on the wine industry and the role of expert opinion in determining wine prices. (JEL Classification: D43, Q11)

The Impact of Gurus: Parker Grades anden primeurWine Prices

AbstractThe purpose of this paper is to measure the impact of Robert Parker's oenological grades on Bordeaux wine prices. We study their impact on the so-calleden primeurwine prices, i.e., the prices determined by the château owners when the wines are still extremely young. The Parker grades are usually published in the spring of each year, before the wine prices are established. However, the wine grades attributed in 2003 have been published much later, in the autumn,afterthe determination of the prices. This unusual reversal is exploited to estimate a Parker effect. We find that, on average, the effect is equal to 2.80 euros per bottle of wine. We also estimate grade-specific effects, and use these estimates to predict what the prices would have been had Parker attended the spring tasting in 2003. (JEL Classification: C21, D89, L15).

Do Tasting Notes Add Value? Evidence from Napa Wines

AbstractThis paper evaluates whether tasting notes—the brief testimony that describes the sensory properties of wines—add value. The analysis is based on a sample of over 2700 recent-vintage cabernet sauvignon wines evaluated by Wine Spectator. I estimate a dynamic wine price model to evaluate the marketing effect of the note, controlling for quality measures as well as other wine characteristics. The results indicate that the length of the tasting note exerts a strong positive influence on the wine's price, even after controlling for quality. A 10 percent increase in the number of characters in the tasting note (about 23 additional characters) contributes about two to four dollars to the price of the wine. Further analysis reveals that the value of the tasting note does not come from the “analytical” words contained in the note but rather, from the more subjective component of it. (JEL Classification: L66, L11, C23)

Wine as an Alternative Asset Class

AbstractUsing a dataset that spans the period 1996 to 2007 and contains transaction prices for all reported auctions at the Chicago Wine Company, we analyze how the prices of high-end wines have evolved during this time period. The best wines according to characteristics like vintage, rating and ranking earn higher returns and tend to have a lower variance than poorer wines. Nevertheless, the different categories of wines seem to follow a rather similar trend over the long run. Wine returns are only slightly correlated with other assets and can consequently be used to reduce the risk of an equity portfolio. Wine looks even more attractive when the investor also has concerns about the skewness of his portfolio. However, the part to be invested in wine is reduced once the kurtosis is included into the analysis. Finally, it seems advisable to diversify across different wine categories as their short-run movements are partially independent of each other. First growths and wines rated as extraordinary by Robert Parker deliver the best tradeoff in terms of portfolio expected returns, variance, skewness and kurtosis for most investor preference settings under consideration. (JEL Classification: C60, G11, Q11)

Pride and prejudice in the evaluation of wine?

PurposeThe region where a wine is produced is a factor that influences consumers' preferences and price perceptions. For most consumers, a wine from an established place like France would be preferred over a wine from less established place, like Texas. However, a consumer's identity with their home area (not well known for wine) may override such an effect. Thus, the purpose of this paper is to determine whether a wine's geographic origin influences wine preference and price perceptions and, if so, whether identity with a place and/or wine expertise moderate this relationship.Design/methodology/approachA total of 257 students from a Texas university sample and rate two identical wines – yet one is labeled as from France and the other as from Texas. Their identification with Texas and their wine expertise are also measured. Paired sample t‐tests and repeated measures MANOCA are used to analyze the data.FindingsThe paper finds that a wine's country of origin has a strong effect on consumers' preferences and price perceptions. Specifically, consumers prefer the French wine over Texas wine and are willing to pay more for the French wine. Consumers' identification with Texas does not significantly mitigate the effects of country of origin; those who score low on Texas identity as well as those who score high had similar ratings for the wines. Similarly, no moderating effects for wine expertise are found.Originality/valueThis research shows the strong effect of county of origin even when participants actually sample the (identical) wines. It offers value by showing that the identity with a region provides little help in overcoming this effect and that wine producers and regions should consider strategies other than appealing to a consumer's identity with the region.

Explaining variation in wine prices: the battle between objective and sensory attributes revisited

The relative influence of objective and sensory attributes' effects on wine prices have intrigued scholars recently. In this regard, a study by Lecocq and Visser (2006) concluded that the objective attributes were of primary importance. Against this background the purpose of this article is two-fold: (i) to establish that Lecocq and Visser's (2006) conclusion might be premature and (ii) to demonstrate how any study aiming at comparing the relative strengths of different sets of explanatory variables might be carried out more effectively.

Market Institutions, Product Identities, and Valuation of California Premium Wines

This study develops an institutional approach to understand how market institutions differentiate the identities and statuses of products and producers and eventually affect the valuation of products. Quantitative and qualitative evidence drawn from the California premium wine market shows that category-based product attributes that signify exclusivity, comply with a high institutional standard, or indicate a high rank in the classification system enhance wine price. Moreover, these attributes have symbolic values in social consumption particularly in a high-tier market segment and do not necessarily function as credible quality signals. These findings reveal the institutional bases of the economic order and status hierarchy in markets and have broad theoretical implications.