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Wine Analytics: Fine Wine Pricing and Selection Under Weather and Market Uncertainty

Author

Listed:
  • Mert Hakan Hekimoğlu

    (Lally School of Management, Rensselaer Polytechnic Institute, Troy, New York 12180)

  • Burak Kazaz

    (Whitman School of Management, Syracuse University, Syracuse, New York 13244)

  • Scott Webster

    (W. P. Carey School of Business, Arizona State University, Tempe, Arizona 85287)

Abstract

We examine a risk-averse distributor’s decision in selecting between bottled wine and wine futures under weather and market uncertainty. At the beginning of every summer, a fine wine distributor has to choose between purchasing bottled wine made from the harvest collected two years ago and wine futures of wine still aging in the barrel from the previous year’s harvest. At the end of the summer, after seeing weather and market fluctuations, the distributor can adjust its allocation by trading futures and bottles. This paper makes three contributions. First, we develop an analytical model to determine the optimal selection of bottled wine and wine futures under weather and market uncertainty. Our model is built on an empirical foundation in which the functional forms describing the evolution of futures and bottle prices are derived from comprehensive data associated with the most influential Bordeaux winemakers. Second, we develop structural properties of optimal decisions. We show that a wine distributor should always invest in wine futures because it increases the expected profit in spite of being a riskier asset than bottled wine. We characterize the influence of variation in various uncertainties in the problem. Third, our study empirically demonstrates for a large distributor the financial benefits of using our model. The hypothetical average profit improvement in our numerical analysis is significant, exceeding 21%, and its value becomes higher under risk aversion. The analysis is beneficial for fine wine distributors, as it provides insights into how to improve their selection in order to make financially healthier allocations.

Suggested Citation

  • Mert Hakan Hekimoğlu & Burak Kazaz & Scott Webster, 2017. "Wine Analytics: Fine Wine Pricing and Selection Under Weather and Market Uncertainty," Manufacturing & Service Operations Management, INFORMS, vol. 19(2), pages 202-215, May.
    • Handle: RePEc:inm:ormsom:v:19:y:2017:i:2:p:202-215
    DOI: 10.1287/msom.2016.0602
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    References listed on IDEAS

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    3. Gunther Glenk & Stefan Reichelstein, 2020. "Synergistic Value in Vertically Integrated Power‐to‐Gas Energy Systems," Production and Operations Management, Production and Operations Management Society, vol. 29(3), pages 526-546, March.
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    5. Emmanuel Joel Aikins Abakah & Aviral Kumar Tiwari & Emmanuel Kwesi Arthur & Luis Alberiko Gil-Alana, 2023. "The influence of economic policy uncertainty shocks on art market," Applied Economics, Taylor & Francis Journals, vol. 55(29), pages 3404-3421, June.
    6. Mert Hakan Hekimoğlu & Burak Kazaz, 2020. "Analytics for Wine Futures: Realistic Prices," Production and Operations Management, Production and Operations Management Society, vol. 29(9), pages 2096-2120, September.
    7. Du, Shaofu & Chen, Yuan & Peng, Jing & Nie, Tengfei, 2022. "Incorporating risk fairness concerns into wine futures under quality uncertainty," Omega, Elsevier, vol. 113(C).
    8. Hachmi Ben Ameur & Zied Ftiti & Eric Le Fur, 2024. "What can we learn from the analysis of the fine wines market efficiency?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 703-718, January.
    9. Gunther Glenk & Stefan J. Reichelstein, 2019. "Synergistic Value in Vertically Integrated Power-to-Gas Energy Systems," CESifo Working Paper Series 7958, CESifo.
    10. Hachmi Ben Ameur & Eric Le Fur & Julien Pillot, 2023. "The Influence of Economic Policy Uncertainty and Business Cycles on Fine Wine Prices," Computational Economics, Springer;Society for Computational Economics, vol. 62(2), pages 589-608, August.
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    12. Jalili, Monire & Çil, Eren B. & Pangburn, Michael S., 2024. "Pricing and structuring product trials: Separate versus mixed wine tastings," European Journal of Operational Research, Elsevier, vol. 312(2), pages 668-683.

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