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Does Excellence Pay Off? Theory and Evidence from the Wine Market

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  • Stefano Castriota

    (University of Pisa, Department of Political Science)

  • Alessandro Fedele

    (Free University of Bolzano‐Bozen, Faculty of Economics and Management)

Abstract

We investigate how product excellence impacts on firm profitability in a competitive market with vertical and horizontal differentiation. We develop a theoretical model and derive conditions under which the effect of excellence on profitability, the latter defined as the ratio of equilibrium profits to the invested capital, can be either positive, zero, or negative. We test our theoretical predictions by examining a sample of 1,052 Italian wineries over the period 2006-2015. Using different econometric methodologies, we find that excellence, proxied by firm reputation for quality, does not affect profitability, measured by the return on invested capital (ROIC). We conclude by discussing policy and managerial implications. (NOTE: This paper is a radically revised version of the paper "Does Excellence Pay Off? Evidence from the Wine Market", published in this series as BEMPS49)

Suggested Citation

  • Stefano Castriota & Alessandro Fedele, 2021. "Does Excellence Pay Off? Theory and Evidence from the Wine Market," BEMPS - Bozen Economics & Management Paper Series BEMPS77, Faculty of Economics and Management at the Free University of Bozen.
    • Handle: RePEc:bzn:wpaper:bemps77
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    More about this item

    Keywords

    product excellence; firm profitability; vertical and horizontal differentiation; reputation for quality; wine market;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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