TASTE OR REPUTATION: WHAT DRIVES MARKET PRICES IN THE WINE INDUSTRY?

Luigi Benfratello (1) , Massimiliano Piacenza (2, 3) , Stefano Sacchetto (4)

1 Faculty of Economics
2 Institute for Economic Research on Firms and Growth (Ceris-CNR)
3 Center for Research on Regulated Services
4 Economics

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 taste one, whereby suggesting that a greater amount of information on how the wine price is formed is contained in the reputation specification.

Mots clés: Social Sciences & Humanities

Luigi Benfratello, Massimiliano Piacenza, Stefano Sacchetto. TASTE OR REPUTATION: WHAT DRIVES MARKET PRICES IN THE WINE INDUSTRY?. Applied Economics, 2009, 41 (17), pp.2197-2209. ⟨10.1080/00036840701222439⟩. ⟨hal-00581963⟩