Wine Prices Research Articles

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)

The Price of Wine

Using historical price records for Bordeaux Premiers Crus, we examine the impact of aging on wine prices and the long-term investment performance of fine wine. In line with the predictions of an illustrative model, young maturing wines from high-quality vintages provide the highest financial returns. Past maturity, famous châteaus deliver growing non-pecuniary benefits to their owners. Using an arithmetic repeat-sales regression over 1900-2012, we estimate a real financial return to wine investment (net of storage costs) of 4.1%, which exceeds bonds, art, and stamps. Returns to wine and equities are positively correlated. Finally, we find evidence of in-sample return predictability.

Components of investment grade wine prices

We investigate the fine-wine market from a weak-form efficiency viewpoint using the London International Vintners Exchange index family for the period from January 1993 to February 2010. The autoregressive moving average spectral estimates of variance ratios (VRs) show that the random walk (RW) hypothesis can be rejected regardless of USD or GBP currency denomination and regardless of inflation. The wine returns exhibit large positive autocorrelation, resulting in VRs that are above unity, which indicates that apart from the RW, a stationary component characterizes wine prices. The large stationary component can be associated with the illiquidity of wines and the inefficiency of young wines. The RW component of wine prices is likely to be driven by the market factor. Owing to currency risk, a US wine investor faces a higher risk than his/her UK counterpart, although wines hedge against inflation in both currencies.

Evidence of Convergence to a Signaling Equilibrium for California Wine 2001-2005

Much research has examined Akerlof’s ＂lemons＂ problem, however, very little has addressed convergence to a Spence signaling equilibrium. We examine this convergence issue by testing whether the explained variance in wine prices for California Cabernet Sauvignon improves as the same set of wines progress through subsets of consecutive years. The data are from Wine Spectator and organized in subsets of common wines for 2004 to 2005, 2003 to 2005, 2002 to 2005, and 2001 to 2005. We perform regressions of wine price on quality attributes for each year in each data subset. Using the R-square and mean square error from these regressions, we then perform a trend analysis to examine the factors influencing the improvement of the Rsquare through each year and each wine subset. We find that position or year in the wine subset is a significant determinant of goodness of fit after accounting for year and sample affects. This result, while not conclusive, may suggest some degree of wine price convergence within these subsets of wines.

What to show on the wine labels: a hedonic analysis of price drivers of Sicilian wines

Unlike previous literature, we construct a hedonic model of wine price that incorporates all the main categories of variables simultaneously to enable a better evaluation of their importance on wine price formation. A comprehensive model has the advantage of providing more reliable estimates of the attributes' implicit prices thereby facilitating firms' pricing and improving effectiveness of wine production and marketing decisions. We utilize two different datasets of Sicilian wines collecting data from influential wine guides. Our results suggest that wine price strongly depends on objective features such as vintage, alcoholic content, geographical origin, grape variety, producer size and cellaring potential. In addition, use of containers like tonneaux and barrique positively affects prices, whereas use of concrete containers has a negative influence. No univocal indications emerge with regard to the effect of the type of company, type of viticulture and firm age. As for sensorial characteristics, our analysis provides novel evidence of the importance of olfactory variables such as aroma intensity and the presence of particular smells in the wine. Finally, current guides’ grades and firm reputation play a crucial role in determining wine prices as well.

The impact of wine franchise laws on consumer choice and pricing

PurposeThe purpose of this paper is to compare and contrast wine sales in neighboring franchise law and non‐franchise law states in order to determine impact on wine price, consumer choice, consumer satisfaction, and stakeholder perception.Design/methodology/approachThe study used qualitative interviews with 14 wineries, distributors, and retailers, statistical analysis of Nielsen Scantrack data, and an online survey of 401 wine consumers in Georgia and Florida, USA.FindingsResults show statistical proof that Florida offers more wine selection and lower wine prices on matching brands than Georgia. Qualitative interviews indicate wineries, distributors, and retailers perceive differences in wine choice, price, and overall operating costs in these two states. However, there was no statistical difference between a sample of 401 consumers from Georgia and Florida when asked about their satisfaction level with wine choice and pricing within their state.Research limitations/implicationsFor practical purposes, the research was limited to only two US states. It would be useful to duplicate this study in other states.Practical implicationsPractical implications include the need for new wineries desiring to enter franchise law states to carefully research regulations and distributors before making a commitment, as well as the social issue of less wine choice and higher prices for consumers in Georgia versus Florida.Originality/valueThis is the first empirical study in the USA to focus on the impact of wine franchise laws on consumer choice and wine price. It yields useful information that contributes to the body of knowledge for wine and policy research.

The Price Premium for Organic Wines: Estimating a Hedonic Farm-Gate Price Equation

AbstractOrganic wines are increasingly produced and appreciated. Because organic production is more costly, a crucial question is whether they benefit from a price premium. We estimate hedonic price functions for Piedmont organic and conventional wines. We use data on the production side in addition to variables of interest to consumers. Our results show that, along with characteristics of interest to consumers, some farm and producer characteristics not directly relevant for consumers do significantly affect wine prices. We find that organic wine tends to obtain higher prices than conventional wine. The price premium is not simply an addition to other price components; organic quality modifies the impact of the other variables on price. (JEL Classification: C21, D49, L11, Q12)

Co-integration and Market Integration: An Application to Raphia Palm Wine Markets in Niger Delta Area of Nigeria

The study was designed to examine market integration with the help of co-integration test on the price of Raphia palm wine (RPW) in the Niger Delta Area of Nigeria using evidences from Bayelsa, Delta and Rivers States of Nigeria. Issues considered included; the determination of the existence and level of RPW inter- market price dependences; description of short-run interactions through cross-market lagged price changes; evaluation of long-run responses to contemporaneous price changes in the RPW market; and speed of price adjustments to long-run equilibrium. Multi-stage random sampling was used to select the markets used for the study. Primary data was used for the study while data analysis was achieved using co-integration test by Johansen and Jeselius (1990) applied to four daily market prices of two (rural and urban) Raphia palm wine markets in each of the selected States. Results obtained from the study revealed that price signals and information were transmitted smoothly, but slowly across the markets. The short-run estimates indicated that the rural markets adjusted to price changes in the urban markets within each State, while at the State level, it was observed that Delta and Rivers States did all the price adjustment. The long-run responses to exogenous price changes showed that a one percent increase in the urban prices of RPW within the States resulted in a corresponding decrease in the rural price of RPW by 2.5%, 1.05% and 1.27% for Bayelsa, Delta and Rivers States respectively. While at State level, a 1% increase in price of RPW in Bayelsa State would cause a decrease in price of RPW in Delta and Rivers States' prices by 1.37% and 6.8% respectively. The speed of price adjustment between the short-run and long-run RPW prices measured by ECM within the States were -0.14423 and 0.09206 for urban and rural price in Bayelsa State; -0.2811 and 0.3259 for urban and rural price in Delta State; and 0.3674 and 0.7609 for urban and rural price in Rivers State respectively. On State level, however, Bayelsa State had an adjustment speed of -0.154, Delta had a speed of 0.235, while Rivers State had a speed of 0.0189 respectively. These results have important policy implications. Since Raphia palm wine markets are spatially integrated, the government may think of reducing or even withdrawing its efforts to influence the price in the market.

Changes of the varietal structure of vineyards in the Czech Republic

The paper describes changes in the structure of varieties grown in the Czech Republic. The authors examine the development taking place in this domain within the last 14 years (i.e. from 1997 to 2010). The paper analyses the reasons of these changes and tries to describe the future development expected after 2010. The article also examines the cost and profitability of growing grapes and wine prices. The current production potential of the Czech Republic is 19 633.45 hectares of vineyards. As compared with 1960, the total acreage of vineyards increased nearly three times and the number of the most frequent varieties has also increased. As far as the percentages of Müller Thurgau, Green Veltliner, Italian Riesling and Sankt Laurent varieties is concerned, it is anticipated that their acreages will further decrease, whereas those of Rhein Riesling, Sauvignon, Lemberger and Zweigeltrebe are expected to grow. The results from the survey of consumer behaviour in the wine market in the CR point to the connection between the structure of the vineyards and consumer demand. Lemberger, Cabernet Sauvignon, Müller Thurgau, Grüner Veltliner, Pinot Blanc, Saint Laurent, Blue Portugal, Chardonnay, Riesling and Bohemia Sekt have been the most popular varieties of the market research.  

A Study of Using Analytical Hierarchy Process and Grey Relational Grade in Wine Evaluation

The purpose of this study was to construct a wine evaluation model by using Analytical Hierarchy Process (AHP). Samples totaling 30 in number were subjected to find the main components and analyze the volatile elements. The elements studied included five components: dry extract, pH, titratable acidity, alcohol level and residual sugar. The price of the wine will also be included. Analytical Hierarchy Process is built basically on these six elements. This thesis will use interviews and evaluation of experts' questionnaires to sift the evaluation index. Next, the AHP is applied to conduct professional evaluation, and then get the relative weights of indicators under the examination of evaluation index. The result will give the ratings of the wines from poor to excellent. It is hoped that this study may lead to helpful for assist consumer in choosing a wine. The model will be able to commend adaptive the wine to consumer and provide the information of the wine. It will be very useful in hospitality industry.

The Value of Good Neighbors: A Spatial Analysis of the California and Washington State Wine Industries

The fact that wineries tend to cluster can be partially explained by the <i>terroir</i> of those areas. However, a gap in our understanding of the spatial relationships among wineries remains. In this article, winery-level data from California and Washington State with GIS coordinates are utilized to examine the spatial relationships among neighboring wineries. Spatial effects are assessed by performing clustering tests based on wine prices and tasting scores. A spatial-lag model is then estimated to test whether there are positive effects from neighbors in a hedonic price estimation. The results indicate that strong and positive neighbor effects are present. <i>(JEL Q11, R32)</i>

Network Progeny? Prefounding Social Ties and the Success of New Entrants

Entrepreneurs that were employed by successful industry incumbents prior to founding tend to confer advantages on their new organizations. We propose and then demonstrate a similar “network progeny” effect rooted in the social relationships that form among entrepreneurs. Our analysis of new entrants into the Ontario wine industry shows that prefounding friendship ties of the founders of one especially prominent entrepreneurial firm led to significantly higher ice wine prices. This attests to the promise of a network progeny extension of the parent–progeny account of new firm success. Follow-on analysis indicates that this effect is not attributable to an entrant's ability to make ice wines of superior quality or to it having access to better distribution knowledge. We therefore conclude that having a social tie to this prominent entrepreneurial firm generated reflected prominence that enhanced the valuations and therefore prices of wines made by connected market entrants.This paper was accepted by Jesper Sørensen, organizations.

Perspectives on Consumers' Attitudes to Wine's Region of Origin in a Restaurant Setting

This exploratory study examines the relative importance of wine's region of origin in the consumer wine-buying decision-making process in a restaurant setting of the market. The research seeks to evaluate whether its relative importance varies and under what conditions, including taking into account consumers' quality perception of wine's region of origin, anticipated consumption situation, consumption behavior and a number of demographic variables. Data are collected through the use of a self-administered, highly-structured questionnaire in a restaurant in Gawler, South Australia. The sample consists of the restaurant clientele who had both consumed and purchased wine in the previous 12 months resulting in 70 useable surveys. Region of origin has a relatively high importance in the consumer wine-buying decision-making process although wine type and grape variety are the most important choice factors in the wine selection process. Region of origin varies in importance as a choice factor within consumption situations and pre-conditions. The higher the price of wine under consideration, the greater the level of importance placed upon region or origin. There is a positive correlation between consumers' wine quality perception of a wine region and the degree of importance placed on region of origin when selecting wine.

Management Insights

Management Insights

Wine price risk management: International diversification and derivative instruments

Variations in fine wine prices can be prominent and have widespread economic and financial implications. Although fine wine investments are dominated by French wines, we demonstrate that significant international diversification benefits exist for investors in Italian, Australian and Portuguese fine wines. This is important since we also find that diversification across varieties of French wine is not likely to be that effective. We propose the development of futures and options contracts on standardized wine price indices in order to enhance market completeness and to address the risk management needs of all market participants. Several popular continuous time processes are used to approximate empirically the dynamics of four fine wine price indices. On the basis of our results, we recommend appropriate equilibrium models for pricing fine wine futures and option contracts.

Wine Price Risk Management: International Diversification and Derivative Instruments

Variations in fine wine prices can be prominent and have widespread economic and financial implications. Although fine wine investments are dominated by French wines, we demonstrate that significant international diversification benefits exist for investors in Italian, Australian and Portuguese fine wines. This is important since we also find that diversification across varieties of French wine is not likely to be that effective. We propose the development of futures and options contracts on standardized wine price indices in order to enhance market completeness and to address the risk management needs of all market participants. Several popular continuous time processes are used to approximate empirically the dynamics of four fine wine price indices. On the basis of our results, we recommend appropriate equilibrium models for pricing fine wine futures and option contracts.

“Cult” Wine?

California's cult wine has captured the fascination of wine consumers and wine producers during the past two to three decades as the wine industry witnessed the prices of California's cult wine rise to exorbitant prices. The purpose of this study is to apply a marketing definition of cults to cult wine in order to offer an alternative conceptualization of cult wine. This study offers conceptual and empirical support for an alternative conceptualization of cult wine that wine producers, consumers, and researchers can use to better understand why consumers pay exorbitant prices for exclusive California wine.

CHANGE AT WINE MARKET IN THE COUNTRIES OF CEFTA REGION

Viticulture and wine production are important industries in most of the countries who have signed CEFTA agreement. The countries of this region have favorable environmental conditions for a high production of grapes and wine. The subject and purpose of the research is to understand the trends of production, export and import in the countries of CEFTA region. Source of data is FAO database (Food and Agriculture Organization - FAO), for the time period 2000-2009. Average wine production in the given region is 610 million liters with a tendency of slight decrease at an average annual rate of 2.81%. Average wine export for countries of this group is the 243.5 million liters, with a tendency of slight decrease at a rate of 1.74%. Export price of wine is 0.9 dollars per liter, which indicates that lowerquality categories of wine (table wine) are mainly being exported. The most important exporter is Moldova with the participation of 63% of total exports from the region. Import of wine is 50 million liters with a trend of significant growth at an average rate of 12.44% per year. The largest importer is the Republic of Serbia with a share of 46.7% of the region. Countries in the region are achieving a positive trade balance of wine, averagely over 190 million liters. It is necessary to increase the production of wine with changes in the structure with regard to quality.

The impact of chemical and sensorial characteristics on the market price of Italian red wines

The hedonic price analysis presented in this paper is carried out on a dataset containing observable, sensory and chemical characteristics of a sample of Italian red wines. The study starts from the commonly observed evidence that in general the market price can be explained by the objective characteristics appearing on the label of the bottle and not by the wine's quality. The aim of the analysis is to discover how quality matters. This objective is pursued by means of the construction of latent sensory and chemical factors, whose implicit value, quantified using Random Forest variable importance measures, turns out to be appreciably high.

On the Causality, Cause, and Consequence of Returns to Organizational Status: Evidence from the Grands Crus Classés of the Médoc

This paper addresses the recent debate about the causality, cause, and consequence of returns to status on the organizational level. I exploit the grand cru classification of chateaux of the Medoc created in 1855 as an unambiguous and exogenous status signal. I study its effect on wine prices and the incentive to invest in quality over a period of time during which information about producer and product quality has become increasingly munificent. As for the causality of status effects, I find evidence for causal returns to organizational status, but these returns are substantially overestimated if quality and reputation are not accurately controlled on the product level. As for the cause of status effects, I find that uncertainty is not a necessary condition and the taste for high-status products is a sufficient condition for returns to organizational status. As for the consequence of status effects, I find that higher-status producers’ greater incentives to invest in quality are insufficient to enforce a separating equilibrium in producers’ quality choices. The study cautions that causality claims in the status literature hinge upon proper identification, that returns to status can have alternative root causes, and that status hierarchies need not enshrine the quality hierarchy among producers.