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Identifying the Effect of Unobserved Quality and Experts' Reviews in the Pricing of Experience Goods: Empirical Application on Bordeaux Wine

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  • Dubois, Pierre
  • Nauges, Céline

Abstract

We propose a structural empirical approach à la Levinsohn and Petrin (2003) to disentangle the effect of experts’ grades from the effect of unobserved quality on the pricing of experience goods. Using a panel data set of 108 châteaux selling wine on the Bordeaux ‘en primeur’ market, we provide some empirical validation for the theoretical result that the price set by wine producers is used as a signal for wine quality. We confirm that experts’ grades affect producers’ choice of ‘en primeur’ price above the effect of unobserved wine quality. Our empirical results also show that failing to control for endogeneity caused by the omission of unobserved leads to over-estimate the influence of experts’ grades on the ‘en primeur’ price.
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  • Dubois, Pierre & Nauges, Céline, 2006. "Identifying the Effect of Unobserved Quality and Experts' Reviews in the Pricing of Experience Goods: Empirical Application on Bordeaux Wine," IDEI Working Papers 395, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:4835
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    References listed on IDEAS

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    Cited by:

    1. Kugler, Peter & Kugler, Claudio, 2010. "Parker, Wine Spectator and Retail Prices of Bordeaux Wines in Switzerland: Results from Panel Data 1995 - 2000," Working papers 2010/10, Faculty of Business and Economics - University of Basel.
    2. Onur, Ilke & Bruwer, Johan & Lockshin, Larry, 2020. "Reducing information asymmetry in the auctioning of non-perishable experience goods: The case of online wine auctions," Journal of Retailing and Consumer Services, Elsevier, vol. 54(C).
    3. Clarissa Laura Maria Spiess Bru, 2023. "Does the Tasting Note Matter? Language Categories and Their Impact on Professional Ratings and Prices," Working Papers Dissertations 105, Paderborn University, Faculty of Business Administration and Economics.
    4. Stephen Bazen & Jean Marie Cardebat & Magalie Dubois, 2022. "From Gurus to Geeks? The Role of Customer and Expert Ratings in a Hedonic Analysis of French Red Wine Prices," Working Papers hal-03891458, HAL.
    5. Franken, Jason R. V. & Bacon, Kevin J., 2014. "Organizational Structure and Operation of the Illinois Wine Industry," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 43(1), pages 1-21, April.
    6. Christopher R. Gustafson & Travis J. Lybbert & Daniel A. Sumner, 2016. "Consumer sorting and hedonic valuation of wine attributes: exploiting data from a field experiment," Agricultural Economics, International Association of Agricultural Economists, vol. 47(1), pages 91-103, January.
    7. Dieter Pennerstorfer & Christoph Weiss & Andreas Huber, 2019. "Experts, Reputation and Umbrella Effects: Empirical Evidence from Wine Prices," Economics working papers 2019-08, Department of Economics, Johannes Kepler University Linz, Austria.
    8. Olivier Bargain & Jean‐Marie Cardebat & Raphaël Chiappini, 2023. "Trade uncorked: Genetic distance and taste‐related barriers in wine trade," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(2), pages 674-708, March.
    9. Bonnet, Céline & Hilger, James & Villas-Boas, Sofia B., 2017. "Reduced Form Evidence on Belief Updating under Asymmetric Information - The Case of Wine Expert Opinions," TSE Working Papers 17-834, Toulouse School of Economics (TSE), revised May 2019.
    10. Pecchioli, Bruno & Moroz, David, 2023. "Do geographical appellations provide useful quality signals? The case of Scotch single malt whiskies," Economic Modelling, Elsevier, vol. 124(C).
    11. Coublucq, Daniel, 2013. "Econometric analysis of productivity with measurement error: Empirical application to the US Railroad industry," DICE Discussion Papers 95, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    12. 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.
    13. Tiago Ribeiro & Armando Corsi & Larry Lockshin & Jordan Louviere & Simone Mueller Loose, 2020. "Analysis of consumer preferences for information and expert opinion using a discrete choice experiment," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 19(1), pages 67-80, January.
    14. Man Yu & Hyun-Soo Ahn & Roman Kapuscinski, 2015. "Rationing Capacity in Advance Selling to Signal Quality," Management Science, INFORMS, vol. 61(3), pages 560-577, March.
    15. Edward Oczkowski, 2019. "The relation between Australian wine show results and prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 63(3), pages 389-411, July.
    16. Livat, Florine & Alston, Julian M. & Cardebat, Jean-Marie, 2019. "Do denominations of origin provide useful quality signals? The case of Bordeaux wines," Economic Modelling, Elsevier, vol. 81(C), pages 518-532.
    17. Kugler, Peter, 2010. "Grosse Währung eines kleinen Landes: Der Schweizer Franken 1850 bis?," Working papers 2010/09, Faculty of Business and Economics - University of Basel.
    18. Emmanuel Paroissien & Michael Visser, 2020. "The Causal Impact of Medals on Wine Producers' Prices and the Gains from Participating in Contests," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(4), pages 1135-1153, August.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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