Ceris-CNR Working paper 11/2004
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What Drives Market Prices in the Wine Industry ?
Luigi Benfratelloa,b, Massimiliano Piacenzab,
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Abstract. The aim of this paper is to provide new evidence on the factors affecting wine prices on both methodological and factual grounds. On the methodological ground, this study is the first to apply a general Box-Cox transformation within the context of hedonic models which exploit all the variables (objective and sensorial characteristics, reputation) pointed out by previous literature as relevant in driving market prices. On the factual ground, the paper fills the lack of empirical evidence on the issue for Italy, one of the leading wine producers, by using a large dataset on two premium quality wines (Barolo and Barbaresco) covering the 1995-1998 vintages. Our results support the evidence obtained using data from other countries, showing that sensorial traits, the reputation of wines and producers, as well as objective variables are all important factors influencing the consumers willingness to pay. More importantly, by resorting to a non-nested statistical test (Vuong, 1989) we compare two alternative specifications (taste vs. reputation) and find that the reputation model significantly outperforms the one containing the taste variables. In turn, this result suggests that the reputation model is closer than the taste one to the true model that generated the data.
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JEL Classification: C52; D43; L66
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§ Paper presented at the 2nd Annual International Industrial Organization Conference (IIOC), Kellogg School of Management, Northwestern University, Chicago, April 23-24, 2004. We wish to thank Paola Giordano, Rosalba Ignaccolo, and Alessandro Sembenelli for helpful comments on an earlier draft.
aFaculty of
Economics, University of Turin, Corso Unione Sovietica 218bis, 10134 Torino,
Italy.
bCeris-CNR,
Institute for Economic Research on Firms and Growth, Italian National Research
Council,
cLondon
Business School, Regentīs Park, London NW1 4SA, United Kingdom. |