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-What Drives Market Prices in the Wine Industry ? Estimation of a Hedonic Model for Italian Premium Wines

Author

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  • Luigi Benfratello

    (Faculty of Economics, University of Turin, Corso Unione Sovietica 218bis, 10134 Torino, Italy.)

  • Massimiliano Piacenza

    (Ceris - Institute for Economic Research on Firms and Growth,Turin, Italy)

  • Stefano Sacchetto

    (London Business School, Regent´s Park, London NW1 4SA, United Kingdom.)

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

Suggested Citation

  • Luigi Benfratello & Massimiliano Piacenza & Stefano Sacchetto, 2004. "-What Drives Market Prices in the Wine Industry ? Estimation of a Hedonic Model for Italian Premium Wines," CERIS Working Paper 200411, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    • Handle: RePEc:csc:cerisp:200411
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    References listed on IDEAS

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    Cited by:

    1. Eugenio Brentari & Rosella Levaggi, 2010. "Hedonic Price for the Italian Red Wine: a Panel Analysis," Working Papers 1001, University of Brescia, Department of Economics.
    2. Malorgio, Giulio & Hertzberg, Anna & Grazia, Cristina, 2008. "Italian wine consumer behaviour and wineries responsive capacity," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44419, European Association of Agricultural Economists.
    3. Malorgio, Giulio & Camanzi, Luca & Grazia, Cristina, 2007. "Effectiveness of European Appellations of Origin on the International wine market," 105th Seminar, March 8-10, 2007, Bologna, Italy 7896, European Association of Agricultural Economists.
    4. Bicknell, Kathryn & MacDonald, Ian, 2009. "How Important is Reputation for New Zealand Wine Makers?," 2009 Conference, August 27-28, 2009, Nelson, New Zealand 115717, New Zealand Agricultural and Resource Economics Society.
    5. Florkowski, Wojciech J. & Carew, Richard & He, Senhui, 2008. "British Columbia Consumers' Preferences for Italian Wines: Reputation and Vintage Effects on Wine Quality and Prices," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44403, European Association of Agricultural Economists.

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    More about this item

    Keywords

    Hedonic pricing; Box-Cox estimation; Sensorial characteristics; Reputation; Vuong test;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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