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Love or Money? The Effects of Owner Motivation in the California Wine Industry

Author

Listed:
  • Fiona M. Scott Morton

    (School of Management)

  • Joel M. Podolny

    (Organizational Behavior Unit)

Abstract

Many industries are characterized by heterogeneous objectives on the part of firm owners. Owners of private firms, in particular, are likely to maximize utility, rather than profits. In this paper, we model and measure motivations of owners in on particular industry, the California wine industry. In both a formal model and an empirical analysis, we examine the implications of these motivations for market behavior. We find evidence that owners with strong non-financial motivations choose higher prices for their wines, controlling for quality; owners with strong profit-maximizing motives choose lower prices for their wines, controlling for quality. We also find that utility-maximizers are more likely to locate at the higher end of the quality spectrum, whereas profit-maximizers are more likely to locate at the lower end. We explore how the presence of a significant number of utility maximizers within an industry affects the competitive interactions within that industry. We conclude that some winery owners 'consume' features of their product or business as a substitute for profits and, in the process, provide softer price competition for for-profits. Additionally, in aggregate, their preference for quality can prevent entry into the high-quality segment on the part of profit-maximizing firms.

Suggested Citation

  • Fiona M. Scott Morton & Joel M. Podolny, 1998. "Love or Money? The Effects of Owner Motivation in the California Wine Industry," Yale School of Management Working Papers ysm101, Yale School of Management.
  • Handle: RePEc:ysm:somwrk:ysm101
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    Cited by:

    1. Haveman, Heather A. & Khaire, Mukti V., 2004. "Survival beyond succession? The contingent impact of founder succession on organizational failure," Journal of Business Venturing, Elsevier, vol. 19(3), pages 437-463, May.
    2. Hart, Oliver D. & Zingales, Luigi, 2022. "The New Corporate Governance," Working Papers 317, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    3. Bernd Frick, 2004. "Does Ownership Matter? Empirical Evidence from the German Wine Industry," Kyklos, Wiley Blackwell, vol. 57(3), pages 357-386, August.
    4. R. Javier Bustos S. & Julio PeƱa Torres & Manuel Willington, 2007. "Propiedad Extranjera y EspecializaciĆ³n Productiva en la Industria del Vino en Chile," ILADES-UAH Working Papers inv184, Universidad Alberto Hurtado/School of Economics and Business.

    More about this item

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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