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Estimating the Demand for Wine Using Instrumental Variable Techniques

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  • Cuellar, Steven S.
  • Huffman, Ryan

Abstract

The demand for wine is generally estimated on an aggregate level as a single commodity. However, as recent history shows us, the demand for wine not only varies considerably by varietal, but also by price point within each varietal. As a result, although estimates of the demand for wine may be beneficial to the wine industry as a whole, they provide little benefit to individual wine producers. Using scan data of purchases from US retail chain stores, this paper uses store keeping unit (sku) level data to overcome the limitations of prior research on the demand for wine by providing estimates for the demand for wine by varietal and price point. We also provide estimates of own price effects, income effects by color, varietal and price segment. Problems of endogeneity inherent in demand estimation are corrected by utilizing a novel instrumental variable technique using grape prices as the instrument. (JEL Classification: C23, D12)

Suggested Citation

  • Cuellar, Steven S. & Huffman, Ryan, 2008. "Estimating the Demand for Wine Using Instrumental Variable Techniques," Journal of Wine Economics, Cambridge University Press, vol. 3(2), pages 172-184, January.
    • Handle: RePEc:cup:jwecon:v:3:y:2008:i:02:p:172-184_00
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    Citations

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    Cited by:

    1. Kyle Peterson, 2014. "The Snob Effect of Red Wine: Estimating Consumer Bias in Experimental Blind Wine Tastings," The American Economist, Sage Publications, vol. 59(1), pages 76-89, May.
    2. Palma, David & Ortúzar, Juan de Dios & Rizzi, Luis Ignacio & Guevara, Cristian Angelo & Casaubon, Gerard & Ma, Huiqin, 2016. "Modelling choice when price is a cue for quality: a case study with Chinese consumers," Journal of choice modelling, Elsevier, vol. 19(C), pages 24-39.
    3. Cuellar, Steven S. & Brunamonti, Marco, 2014. "Retail channel price discrimination," Journal of Retailing and Consumer Services, Elsevier, vol. 21(3), pages 339-346.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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