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Working Paper No. 35

Published: 2009
Category:
Economics

When Does the Price Affect the Taste? Results from a Wine Experiment

Johan Almenberg & Anna Dreber
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Abstract
We designed an experiment that examines how knowledge about the price of a good, and the time at which the information is received, affects how the good is experienced. The good in question was wine, and the price was either high or low. Our results suggest that hosts offering wine to guests can safely reveal the price: much is gained if the wine is expensive, and little is lost if it is cheap. Disclosing the high price before tasting the wine produces considerably higher ratings, although only from women. Disclosing the low price, by contrast, does not result in lower ratings. Our finding indicates that price not only serves to clear markets, it also serves as a marketing tool; it influences expectations that in turn shape a consumer’s experience. In addition, our results suggest that men and women respond differently to attribute information.

Working Paper No. 34

Published: 2009
Category:
Business

Catching-up Trajectories in the Wine Sector: A Comparative Study of Chile, Italy and South Africa

Lucia Cusmano, Andrea Morrison & Roberta Rabellotti
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Abstract
From a development perspective an investigation of the changes that have occurred in the wine industry is of particular interest because it provides evidence on how emerging economies have been able to acquire significant shares of the international market in a dynamic sector. Based on novel empirical evidence as well as secondary sources, this paper shows that emerging countries with diverse institutional models and innovation strategies, have been driving the process of technological modernization and product standardization. Newcomers in the wine sector have responded particularly effectively to changes in consumption habits, and in aligning emerging scientific approaches with institutional building efforts and successful marketing strategies.

Working Paper No. 33

Published: 2009
Category:
Economics

The Effect of Fast Food Restaurants on Obesity

Janet Currie, Stefano DellaVigna, Enrico Moretti & Vikram Pathania
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Abstract
We investigate the health consequences of changes in the supply of fast food using the exact geographical location of fast food restaurants. Specifically, we ask how the supply of fast food affects the obesity rates of 3 million school children and the weight gain of over 1 million pregnant women. We find that among 9th grade children, a fast food restaurant within a tenth of a mile of a school is associated with at least a 5.2 percent increase in obesity rates. There is no discernable effect at .25 miles and at .5 miles. Among pregnant women, models with mother fixed effects indicate that a fast food restaurant within a half mile of her residence results in a 2.5 percent increase in the probability of gaining over 20 kilos. The effect is larger, but less precisely estimated at .1 miles. In contrast, the presence of non-fast food restaurants is uncorrelated with obesity and weight gain. Moreover, proximity to future fast food restaurants is uncorrelated with current obesity and weight gain, conditional on current proximity to fast food. The implied effects of fast-food on caloric intake are at least one order of magnitude smaller for mothers, which suggests that they are less constrained by travel costs than school children. Our results imply that policies restricting access to fast food near schools could have significant effects on obesity among school children, but similar policies restricting the availability of fast food in residential areas are unlikely to have large effects on adults.

Working Paper No. 32

Published: 2008
Category:
Economics

Bubbles in Prices of Exhaustible Resources

Boyan Jovanovic
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Abstract
Aside from the equilibrium that Hotelling (1931) displayed, his model of non-renewable resources also contains a continuum of bubble equilibria. In all the equilibria the price of the resource rises at the rate of interest. In a bubble equilibrium, however, the consumption of the resource peters out, and a positive fraction of the original stock continues to be traded forever. And that may well be happening in the market for high-end Bordeaux wines.

Working Paper No. 31

Published: 2008
Category:
Economics

The Demand for Beer, Wine and Spirits Insights from a Meta-Analysis Approach

James Fogarty
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Abstract
The demand for alcohol literature is vast and much conflicting information about the nature of the demand for alcoholic beverages has been published. This article presents a survey of the literature, and then uses the technique of meta-regression analysis to establish insights into the nature of the demand for beer, wine, and spirits. Unlike previous meta-studies of the demand for alcoholic beverages this study adjusts for the precision of each elasticity estimate. The analysis presented suggests reported elasticity estimates will be influenced by such factors as estimation technique, data frequency, and time period under consideration. With respect to time, the findings suggest that the demand for alcoholic beverages has become less inelastic since the mid-1950s and that the income elasticity has been falling since the mid-1960s. The analysis also found support for the idea that alcohol as a commodity group is a necessity, and that consumers respond to price discounting with inventory behaviour rather than true substitution behaviour. Little support is found for the idea that the demand for alcoholic beverages varies fundamentally across most countries, although
wine may be an exception.

Working Paper No. 30

Published: 2008
Category:
Economics

Individual and Collective Reputation: Lessons from the Wine Market

Stefano Castriota & Marco Delmastro
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Abstract
The concept of reputation has been used in every field of economic research, given its capacity to affect the outcome of all economic and financial transactions. The theoretical debate on reputation is very rich, but the mechanisms of reputation building have not been explored enough from the empirical viewpoint. In this paper we investigate the determinants of firm reputation taking into consideration the interactions between individual and collective reputation. This paper is one of the first attempts to provide robust evidence on the determinants of firm reputation using a large set of controls applied to a database not affected by self-selection bias. In fact, we constructed a new database containing the universe of wineries located in four regions of the North-West of Italy with an established national reputation and focus on the determinants of the “jump” from national to international reputation. Our research confirms the prediction of the theoretical literature and shows the positive effect of firm age, size, investments and producer’s intrinsic motivations, and of collective reputation on individual firm reputation. Cooperatives seem to decrease their reputation when the number of associated members rises, due to free-riding and traceability problems. In contrast with previous research, relying on well-known external consultants does not acquire any outside reputation. Finally, by comparing the regression results on the determinants of national and international reputation it emerges the relevance of the mechanisms of the evaluation process: the higher proximity to the wineries of a national observer permits a better and more technical knowledge of the quality provided, allowing small niche producers with very low productivity to emerge and be known. For the same reason, the national classification system (i.e. the DOCG system) exerts a significant effect only on the international reputation of wineries, but not on the national one where the effect of collective reputation (i.e. the reputation of single denominations like Barolo) seems to prevail.

Working Paper No. 29

Published: 2008
Category:
Economics

Modeling Perceptions of Locally Produced Wine among Restaurateurs in New York City

Trent Preszler & Todd M. Schmit
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Abstract
Poor perceived product quality, an inadequate sales force, and intense competition from wines produced elsewhere are common reasons cited for why New York wines have not achieved broad acceptance in the New York City (NYC) market. NYC restaurant owners, sommeliers, and chefs were surveyed regarding their perceptions and purchasing decisions of wines grown and bottled in New York State. Factor analysis was applied to examine the structure of interrelationships among key indicators of product perception, and an ordinal logistic regression model was used to identify the characteristics of restaurants that show a strong propensity to adopt local wines. The results indicate that a NYC restaurant’s type of cuisine does not affect its propensity to adopt local wine, nor does a restaurant’s desire to offer a large, geographically diverse wine list. The perceived collective reputation for a wine region’s excellence in one particular grape varietal was found to be the most significant factor in the probability of adoption of local wines in NYC. An important implication of these results is that being local is not enough, and New York winery stakeholders could establish a more prominent presence in NYC by emphasizing their collective reputation for particular grape varietals.

Working Paper No. 28

Published: 2008
Category:
Economics

Unobserved heterogeneity in the wine market: an analysis on Sardinian wine via Mixed Logit

Maria Bonaria Lai, Teresa Del Giudice & Eugenio Pomarici
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Abstract
The evolution experienced by the food sector in the last ten years has greatly changed the models which analysts employ to explore the purchase and consumption patterns of post-industrial society. New consumption patterns are based partly on undifferentiated food products and partly on high quality ones, like high quality wine, which are strongly characterised by a close link to specific geographical areas, and their local traditions in food production.
The present study attempts to offer more insights into the Italian wine, in particular the Sardinia wine market with emphasis on wines produced by local vineyards by relating wine choice to consumers’ preferences.
We assess the effects of such characteristics of the wine produced in Sardinia on consumer preferences, using a discrete choice model. Perceived quality in wine is complex and often operationalized by multi-dimensional constructs, whose measurement requires sophisticated approaches. Wine is a food category where consumers’ quality perception is particularly difficult, because, among other things, wine is a highly differentiated product.
The paper presents some results from a stated-preference study on data collected by a web-based survey of 138 Italian consumers. A series of multinomial logit models are estimated from choice experiment responses and tested for unobserved heterogeneity for some wine attributes. The consequences of such form of heterogeneity are flashed out with respect to issues of market segmentation on the basis of the pattern of correlation across preferences as estimated from mixed logit models.
The paper is organized as follows: the following section illustrates the survey and data; section 3 shows the research methods and theory behind our approach. Section 4 discusses the characteristic of the econometric model, while section 5 presents the results of the choice model. At the end, section 6 discusses some conclusions.

Working Paper No. 27

Published: 2008
Category:
Business

State Funded Marketing and Promotional Activities to Support a State’s Winery Business

Roger D. Hanagriff, Michael Lau & Sarah L. Rogers
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Abstract
Texas wineries were surveyed regarding their participation in wine marketing activities, annual changes in gross sales, and level of sales growth attributed to Texas Department of Agriculture’s funding support. The response from the 93 registered Texas wineries was 53 wineries, which was a 57 percent response rate. Senate Bill 1370 allocated $725,000 for marketing and promotion of Texas wines. Combining the $725,000 with the normal funding of $250,000 creates $975,000 in annual support to the Texas wine industry to be used in marketing Texas wine.
The most utilized funded activities are promotional materials and wineries attending TDA supported wine events. Ninety-two percent of Texas wineries recognized an increase in awareness for the Texas wine industry and attribute 49 percent of the increase to state marketing efforts and use of state funding. As previously mentioned, a portion of TDA marketing funds were directed towards supporting wine events in Texas attracting large numbers of consumers for promotional opportunities. Consumers attending these events were surveyed and one result found that 68 percent of consumers reported these events encouraged them to purchase more Texas wines.
Annual economic impact results from all funding activities were $2.16 per $1 of funding of total direct sales increases, $3.93 per $1 of funding in economic impacts of increases in sales and $.40 per $1 of funding in valued added impacts (based on IMPLAN Type II Economic Multiplier values). It is apparent that both direct and indirect economic results were positive towards program funding and created economic growth in local economies.

Working Paper No. 26

Published: 26
Category:
Business

Locational dynamics of Brazilian winegrowing: new regions in Rio Grande do Sul and in the São Francisco River Valley area

Luciane Schneider, Márcia Azanha Ferraz Dias de Moraes & Pedro Valentim Marques
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Abstract
The objective of the research is to identify the locational factors that influenced the decision to expand winemaking activity into other regions of Brazil. In recent years, winemaking has expanded into new regions in the state of Rio Grande do Sul (Serra do Sudeste and Campanha) and into the São Francisco River Valley (states of Bahia and Pernambuco) - regions where this activity had not previously been carried out. Rio Grande do Sul, the state with the largest production volume, produces around 90% of all Brazilian wine. Expansion has taken place both inside and outside the state. Primary data were collected through direct interviews with winemakers for the purpose of identifying the factors that drive the locational decision-making process. It was shown that the Brazilian winemaking activities are conditional to the spatial distribution of the productive resources: the companies are concerned about the quality of the end product (wine), which is optimized by the quality of the raw materials (grapes). This, in turn, depends on the edaphic and climatic conditions in the productive region. Another factor that is considered important in winemaking expansion decision-making activities in the country has arisen from the current physical constraints in Serra Gaúcha: a large part of the available land lies in Permanent Protection Areas (APP), and the rest would be very expensive to acquire. This has had also an influence on the decision to shift activities to other regions.

Working Paper No. 25

Published: 2008
Category:
Economics

The Sideways Effect: A Test for Changes in the Demand for Merlot and Pinot Noir Wines

Steven Cuellar, Dan Karnowsky & Frederick Acosta
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Abstract
This paper examines the effect of the movie Sideways on US wine consumption.
Specifically, we examine the effects of the movie on the consumption of Merlot, which is derided in the movie and the effect on Pinot Noir, which is praised. We examine the trends in consumption before and after the movie and perform statistical tests for structural changes in consumption. We also estimate demand functions for both Merlot and Pinot Noir and test for differences in their demands before and after the movie. Finally, we test for changes in consumption of each varietal by price point.

Working Paper No. 24

Published: 2008
Category:
Economics

Estimating the Demand for Wine Using Instrumental Variable Techniques

Steven Cuellar and Ryan Huffman
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Abstract
The demand for wine is generally estimated on an aggregate level as a single commodity. However, as recent history shows us, the demand for wine not only varies considerably by varietal, but also by price point within each varietal. As a result, although estimates of the demand for wine may be beneficial to the wine industry as a whole, they provide little benefit to individual wine producers. This paper seeks to overcome the limitations of prior research on the demand for wine by providing estimates for the demand for wine by varietal and price point. We also provide estimates of own price effects, income effects as well as cross price effects by color, varietal and price point. Problems of endogeneity inherent in demand estimation are corrected by utilizing a novel instrumental variable technique using grape prices as the instrument.

Working Paper No. 23

Published: 2008
Category:
Economics

Restaurant Prices and the Minimum Wage

Denis Fougère, Erwan Gautier & Hervé Le Bihan
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Abstract
We examine the e§ect of the minimum wage on restaurant prices. For that purpose, we estimate a price rigidity model by exploiting a unique dataset of individual price quotes used to calculate the Consumer Price Index in France. We Önd a positive and signiÖcant impact of the minimum wage on prices. We obtain that the e§ect of the minimum wage on prices is very protracted. The aggregate impact estimated with our model takes more than a year to fully pass through to retail prices.

Working Paper No. 22

Published: 2008
Category:
Unkategorized

Economic Geography of the U.S. Wine Industry

Patrick Canning & Agnes Perez
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Abstract
This study examines wine trade in the United States to assess the impact of higher energy costs on the average distance of world and U.S. regional wine shipments, or wine miles, to U.S. markets. To examine this issue we calibrate a spatial equilibrium model of the U.S. wine industry. The model accounts for (i) consumer preferences for variety, (ii) monopolistic- competition/increasing-returns in the production of differentiated wine products, and (iii) transportation costs. Wine production areas are grouped into nine U.S. and seven world producing regions. U.S. markets are grouped into the 50 States plus the District of Columbia. Results indicate that U.S. consumers are willing to pay substantial transportation costs in order to consume a wide variety of wines from premier U.S. and world wine growing regions. As increasing energy costs drive up the price of freight services, wine mile impacts are limited by the degree of regional product differentiation in U.S. and world producing regions.

Working Paper No. 21

Published: 2008
Category:
Unkategorized

Our Saviors May Not Speak Spanish: Changing Markets and Strategies in Argentina’s Wine Revolution, 1990-2008

Steve Stein
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Abstract
We have a coherent and combative position...transform an activity dedicated to making massive and undifferentiated products, to products high in quality able to be differentiated by the market.
Centro de Bodegueros de Mendoza, “El valor de la coherencia,” Bodegas y terruños, # 1 (March 1999), 44.

The rise of exports starting in the second half of the 1990s was perhaps the most transcendental phenomenon of the local wine industry, not only because it reflected the enormous potential of a greater insertion of domestic production internationally, but also because of its repercussions for wine production as well as for the marketing of Argentine wine and consequently for wine business strategies.
Daniel Aspiazu and Eduardo Basualdo, Estudios sectorales. Componente: Industria vítivinícola. Buenos Aires: CEPAL-ONU, 2003, 15.

Argentina emerges. Argentina’s wine industry is experiencing astonishing growth, both in production and international acceptance....And if you taste a rich Argentinean Malbec, all this makes perfect sense.
Adam Strum, “Top 10 Wine Stories of 2006,” The Wine Enthusiast, XX:1 (January 31, 2006), 10.

I know that 50 percent of spending on marketing is wasted. The problem is, I don’t know which 50 percent. Old marketing dictum.

Working Paper No. 20

Published: 2008
Category:
Unkategorized

Firm Creation, Firm Evolution and Clusters in Chile’s Dynamic Wine Sector: Evidence from the Colchagua and Casablanca Regions

Robert N. Gwynne
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Abstract
Since Chile’s adoption of outward orientation, the country has converted itself into the fourth largest producer in exports volume and fifth large producer in export value (ODEPA, 2005 & Olavarria et al, 2008). It has increased its share in the predominant markets, shown by its increase in shelf space in the U.K supermarket (Gwynne, 2008c). The study of how Chile changed around its wine sector in a short space of time (exports only really started in the 1990’s) is of highest importance, as it is evident this semi- peripheral country has fought its way into the competitive global value chain. I will study the changing periods of wine history in Chile along with firm creation and the strategic evolution of firms. This will examine in particular the record of process upgrading and upgrading in marketing and branding. An analysis of how these firms evolved will investigate how the Chilean wine sector has gained its success in the global market. Finally, a study of clusters in Chile shall be carried out to show the importance of the firms studied in creating economic growth not just for individual firms but also for the economy of an area.
In order to carry out this study two valleys shall be examined. The first is that of the highly successful Colchagua valley in Chile’s sixth region and Casablanca in the fifth region. It is the second most planted region in Chile (Olavarria et al, 2008) and arguably produces the highest quantities of quality wines in Chile. Casablanca, on the other hand it is a relatively young valley, with very little planting of grapes till the early 1990s. It is an example of the extension of traditional wine producing regions in Chile with land under grapes increasing 164% between 1998 and 2006 (Wines of Chile, 2008).
The new dimension of Chile is the east-west axis and there are four major areas in this regard (Richards, 2006: 13-14). The first covers the plateaus and slopes on the western side of the coastal range, where cloudy, humid mornings and stiff afternoon breezes are the norm; this is very much the landscape of Casablanca whose production really took off in the 1990s. The second is the eastern side of the coastal range, where temperatures tend to be very warm except in the sites that are exposed to some oceanic influence – this is where Colchagua at present starts off its new range of vineyards, The third is the central depression and the fourth is the contact zone between this flat land and the Andean foothills in the east, where conditions are warm though moderated by mountain downdraughts and southerly winds. Colchagua covers these latter two regions as well.

Working Paper No. 19

Published: 2008
Category:
Unkategorized

The agricultural and food Trade in the first Globalisation-Spanish Table Wine Exports 1871 to 1935

Vicente Pinilla & Raúl Serrano
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Abstract
The international economy has, for several decades, undergone an intensive process of integration, which has offered developing countries opportunities to increase their exports and, consequently, stimulate their economic growth. Although since the middle of the twentieth century, the greatest opportunities have emerged in the export of manufactured goods, for some countries primary products still constitute a substantial part of their foreign trade and the currency gained through trade. It is well known, however, that the development of such exports faces very diverse difficulties, such as the inelastic income demand for agricultural products, the low participation of these goods in intra-industrial trade or the serious institutional obstacles which exist, derived from the existence of protectionist policies, especially in the more developed countries, which limit their the possibilities of in this direction (Serrano and Pinilla, forthcoming).
The first phase of globalisation, which occurred between the mid-nineteenth century and the First World War, allows us to analyse, albeit in a different historical context, the principal factors which determine the possibilities of trade growth in the long term.
The debate regarding the causes which determined the growth of trade in the first phase of globalisation has notable similarities to that which currently exists with regard to the second phase, although the historical circumstances are obviously different. There is widespread agreement that the increase in incomes has, obviously, been a fundamental cause of its growth (Irwin, 2002; Estevadeordal et al., 2003; Jacks and Pendakur, 2007). In addition, trade liberalization and exchange rate stability have been very important (Jacks, 2006; Estevadeordal et al., 2003; López-Cordova and Meissner, 2001). By contrast, the debate regarding the role of the reduction of transport costs is by no means closed; certain authors believe that this was essential to explain the growth of trade (O’Rourke and Williamson, 1999; Jacks et al., 2008), while others find no evidence on this point (Jacks and Pendakur, 2007). Similarly, different positions exist between those who consider that the stock of immigrants in a country stimulated its trade with their country of origin (Dunlevy and Hutchinson, 1999) and those who believe that the effects of this circumstance were neutral (Jacks, 2005). Belonging to an empire, and therefore lower transaction costs or more favourable trade policies, has also been considered to encourage trade growth in this period (Mitchener and Wedenmier, 2008).
Within this context, the present study concentrates on trade in agricultural products, a group of products which played a central role in this period, maintaining from 1870 onwards a fairly stable participation of approximately 50% of international exchanges (Aparicio et al., 2008). However, very few studies have focused specifically on the determinants which stimulated trade in this type of products, and even less so on those which played such a role in this historical context.
To this end, the present study concentrates on a specific case i.e. trade in Spanish table wine. Wine was one of the key exports produced by Spanish farmers in the mid- nineteenth century. Together with cereals (especially wheat) and oil, it was one of the three key products of Mediterranean agriculture, occupying a significant part of cultivated land and agricultural production.
In the analysis of this case, the literature initially analysed the success of exports and their subsequent collapse as the exclusive consequence of the exceptional demand which existed in France between 1875 and 1891, due to the harm caused by the phylloxera plague in its vineyards (Carnero, 1980). Subsequently, certain wider visions explained the success of exports to France in the general context of the unequal advances of Spain in other markets (Pan-Montojo, 1994), or in the consideration of table wine as a product with low barriers to entry and therefore highly vulnerable to the entry of new producers; moreover, it encountered difficulties in penetrating the markets of non-producing countries (Simpson, 1995).
In recent years, various studies have attempted to study in depth the above- mentioned research lines, broadening them or employing different approaches with the help of econometric models which made it possible to empirically verify the proposed hypotheses. Most notable is the consideration of the harm caused by the French tariff policy (Pinilla and Ayuda, 2002) and the difficulties in penetrating the markets of high- income countries (Ayuda, Aparicio and Pinilla, 1998; Pinilla and Ayuda, 2007 and 2008).
Given this background, the objective of the present study is to analyze the overall trajectory of table wine exports and provide convincing explanations of the pattern. Thus, we employ an approach that takes all of the possible explanatory factors into account, instead of adopting a narrower approach which focuses on a single principal factor. The methodology employed consists of using a gravity model to explain trade flows in Spanish table wine.
Our results highlight the key role of trade policies in the determination of export possibilities and the difficulties derived from the export of products which are characterised by the low or non-existent change in demand when income changes. These results may shed a little more light on the determinants of trade in the first phase of globalization.
Following this introduction, the next section briefly examines Spanish exports of table wine. Subsequently, the data used and the gravity model employed are explained. Next, an analysis is made of the results obtained from the econometric model. Finally, the article ends by providing some conclusions.

Working Paper No. 18

Published: 2008
Category:
Unkategorized

The Economic Impact of the Wine Industry on Hotels and Restaurants in Walla Walla

Karl Storchmann
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Abstract
Walla Walla enjoys the fastest growing wine industry in the State of Washington, if not in the whole U.S. This paper examines the impact of this extraordinary growth on the revenue of regional hotels and restaurants. Employing a dynamic quarterly panel model at the county level we show that the regional reputation as high quality wine county, as expressed by critical wine points in the national wine press, has a significant effect on the tourism industry. Less than 17% of all restaurant and approximately 40% of all hotel revenue is tied to the wine cluster (2007). However, regional reputation is short-living and needs to be constantly re-earned.

Working Paper No. 17

Published: 2008
Category:
Unkategorized

Product Portfolio Change and Organizational Renewal – The D.O. Wine Industry in Castilla-León (Spain)

María del Valle Santos, María Teresa García & Ana María Ortega
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Abstract
The present study is framed within recent works addressing the process of product portfolio renewal as a mechanism for organizational renewal, in that firms may use it to meet the challenge of a changing environment. Based on this theory, we build an analysis model linking product portfolio renewal to changes in external factors and apply it to D.O. wine companies in Castilla y León. We found that both the environment as well as firms themselves had been highly dynamic during the period analyzed vis-à-vis their product portfolios. The importance of issues related to organizational adaptation and adjustment, such as those tackled in our research, lies in their link to organizational survival, making them a focal point of managerial concern. The findings to emerge from our work throw up certain implications which may prove useful to managers. In dynamic environments, such as those in which many firms find themselves immersed, it is likely that a change in the initial external circumstances may lead to a certain lack of organizational adjustment. In this situation, managers should consider the need to implement adjustment mechanisms. One such mechanism, product portfolio renewal, has proven to be a valid alternative to help them find their way in a changing environment.
Keywords: product portfolio renewal, dynamic capabilities, wine industry

Working Paper No. 16

Published: 2008
Category:
Unkategorized

Do More Expensive Wines Taste Better? Evidence from a Large Sample of Blind Tastings

Robin Goldstein, Johan Almenberg, Anna Dreber, John W. Emerson, Alexis Herschkowitsch & Jacob Katz
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Abstract
Individuals who are unaware of the price do not derive more enjoyment from more expensive wine. In a sample of more than 6,000 blind tastings, we find that the correlation between price and overall rating is small and negative, suggesting that individuals on average enjoy more expensive wines slightly less. For individuals with wine training, however, we find indications of a positive relationship between price and enjoyment. Our results are robust to the inclusion of individual fixed effects, and are not driven by outliers: when omitting the top and bottom deciles of the price distribution, our qualitative results are strengthened, and the statistical significance is improved further. Our results indicate that both the prices of wines and wine recommendations by experts may be poor guides for non-expert wine consumers.

Working Paper No. 15

Published: 2008
Category:
Unkategorized

Determinants of Argentinean Wine Prices in the U.S. Market

Guillermo J. San Martín, Bernhard Brümmer & Javier L. Troncoso
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Abstract
A hedonic price function for Argentinean wines in the U.S market is estimated in order to evaluate the effect of the most important attributes of wine on price. Results show that labeling practices and the choice of the right wine quality attributes are far more influential on price than expert panel opinions or oenological wine improvements such as aging.

Working Paper No. 14

Published: 2008
Category:
Unkategorized

Ceago Vinegarden: How green is your wine? Environmental differentiation strategy through Eco-labels

Magali Delmas, Vered Doctori-Blass & Kara Shuster
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Abstract
As the sun began to set over the water, Jim Fetzer sipped a glass of his Kathleen’s Vineyards Sauvignon Blanc 2005. The wine was one the first vintages of his newly established Ceago winery, located on the shores of Clear Lake in Lake County, California. While drinking in the breathtaking view, Jim was also enjoying the wine. The wines rich aromas of juicy apricot and peach were coupled with wonderfully light undertones of vanilla oak spice. He was very proud of the wine’s recent recognition in the winemaking world. However, Jim’s appreciation for the wine went beyond the taste. Wine production at Ceago was executed with great care and respect for the environment. Ceago Vinegarden was a certified biodynamic agricultural enterprise. Farms and vineyards that are certified biodynamic follow strict guidelines to ensure the sustainability of their growing and production practices.
Jim was a passionate advocate for the environment. He spent all his life making wine and promoting sustainable wine practices. Though he was convinced that sustainable practices produce better quality wine, he was not sure how to communicate his passion to his customers. Jim recently reviewed the results of a survey on wine customers’ perceptions of organic and biodynamic wines. Unfortunately, the survey revealed that few customers understood the true meaning behind organic and biodynamic eco-labels. Was communication through eco-labeling the best strategy? Also, in an increasingly competitive industry, was there any room for a differentiation strategy based on sustainable wine practices? Jim was also contemplating expansion of his Vinegarden into an agri-tourism venture, where he could invite people to his vineyard and communicate the magic and the benefits of sustainable farming. Would expanding the business to include agri-tourism help Jim to promote biodynamic wine making and Ceago’s mission?

Working Paper No. 13

Published: 2008
Category:
Unkategorized

Eco-Labeling Strategies: The Eco-Premium Puzzle in the Wine Industry

Magali A. Delmas & Laura E. Grant
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Abstract
Eco-labeling signals that a product has been eco-certified. While there is increasing use of ecolabeling practices, there is still little understanding of the conditions under which eco-labels can command price premiums. In this paper, we argue that the certification of environmental practices by a third party should be analyzed as a strategy distinct from although related to the advertisement of the eco-certification through a label posted on the product. By assessing ecolabeling and eco-certification strategies separately, we are able to identify benefits associated with the certification process independently from those associated with the actual label. More specifically, we argue in the context of the wine industry that eco-certification can provide benefits, such as improved reputation in the industry or increased product quality, which can lead to a price premium without the need to use the eco-label. We estimate this price premium of wine due to the eco-certification of grapes using 13,400 observations of wine price, quality rating, varietals, vintage, and number of bottles produced, for the period 1998-2005. Overall, certifying wine increases the price by 13%, yet including an eco-label reduces the price by 20%. This result
confirms the negative connotation associated by consumers with organic wine. The price premium of this luxury good due to certification acts independently from its label, a confounding result not previously demonstrated by related literature.

Working Paper No. 12

Published: 2007
Category:
Unkategorized

Modelling Long-term Commodities: the development of a Simulation Model for the South African Wine Industry within a Partial Equilibrium Framework

Michela Cutts, Sanri Reynolds, Ferdinand Meyer & Nick Vink
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Abstract
Econometric demand and supply models of agricultural commodities and crops have been around for a long time with extensive research and adaptations being made in the grain and livestock sectors. This much attention has, however, not been afforded to long term commodities. This paper presents a partial equilibrium framework for modelling long term commodities using the South African wine industry as an example. The model structure and important assumptions are presented, after which the usefulness of the model is tested in the form of baseline projections and the analysis of a typical “what if” question. The wine model presented in this paper is housed and maintained in the Bureau for Food and Agricultural Policy (BFAP) at the Department of Agriculture, Western Cape and the Universities of Pretoria and Stellenbosch.

Working Paper No. 11

Published: 2007
Category:
Unkategorized

Alternative Investments: The Case of Wine

Lee W. Sanning, Sherrill Shaffer & Jo Marie Sharratt
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Abstract
For repeat transactions data from monthly auction hammer prices, we analyze the level and quality of Bordeaux wine returns using the Fama-French Three-Factor Model and the Capital Asset Pricing Model. Returns average up to 0.75% per month above those predicted by these models. Further, investment grade wines benefit from low exposure to market risk factors, thus offering a valuable dimension of portfolio diversification. These findings are consistent with simple theoretical considerations and support a documented growing interest in wine investments.

Working Paper No. 10

Published: 2007
Category:
Unkategorized

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

Pierre Dubois & Céline Nauges
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Abstract
We propose a structural empirical approach a 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 quality leads to over-estimate the influence of experts' grades on the "primeur" price.

Working Paper No. 9

Published: 2007
Category:
Unkategorized

Red, White, and “Green”: the Cost of Carbon in the Global Wine Trade

Tyler Colman & Pablo Päster
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Abstract
Climate change is altering a wide range of human activities, including wine making. While wine may appear to be one of the most natural alcoholic beverages, it is not without carbon inputs and emissions, which contribute to the very change in climate that is altering both wine and wine making. In this paper, we use a carbon life cycle analysis to develop a model for quantifying carbon inputs in a bottle of wine. Current regulatory arrangements do not capture the carbon costs of wine effectively since most costs are externalized. We conclude with estimates of the cost of carbon under various regulatory regimes, which suggest how wine producers and consumers can reduce the carbon footprint of wine.

Working Paper No. 8

Published: 2007
Category:
Unkategorized

Do Fluctuations in Wine Stocks affect Wine Prices?

James Bukenya & Walter C. Labys
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Abstract
Globalization and the expansion of world wine trade have caused a wine boom that together with agricultural subsidies have made fluctuations in wine inventories a more critical issue. In the case of domestic and international wine markets, little is known about intertemporal inventory adjustments and how they relate to prices. We investigate possible dynamic relations between these variables in a time series context, so as to better understand how wine producers and traders can face growing price and financial volatility. Countries for whom meaningful data series could be constructed include: Argentina, Australia, France, Germany, Italy, Spain and the United States. The study begins by examining the empirical evidence on inventories in these markets and their relation to prices. Stationarity tests are first performed to assess likely trends in the wine inventory and price variables. Cointegration analysis follows to analyze the stationary relationships between these variables. To explain the dynamics of this relationship, vector autoregressions have been estimated and impulse functions are computed to measure possible delays between variable reactions.

Working Paper No. 7

Published: 2007
Category:
Unkategorized

Changes in the wine chain – Managerial challenges and threats for German wine co-ops

Jon H. Hanf & Erik Schweickert
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Abstract
Wine production in Germany has a tradition of more than 200 years in each of the 13 German quality wine-growing regions. Even today small grape growers dominate the industry. As a result, most of the viticulturists are members of cooperatives. Our observation that grape growers still turn to wine co-ops, and hence, the increase in co-op members and vineyards, might indicate that the wine co-ops are successful. Thus, the aim of our paper is two-fold. First, we analyze the structure of this complex sector and the managerial construct strategic member groups. Second, we empirically test whether the formation of strategic groups is a driver of cooperative success.

Working Paper No. 6

Published: 2007
Category:
Unkategorized

Rethinking Wine Investment in the UK and Australia

James Fogarty
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Abstract
This article presents three arguments as to why the value of wine as an investment good has typically been understated and argues that wine investment in the UK and Australia represents a value proposition. It is argued that general all vintage wine indexes understate the return the typical investor receives; that comparisons using pre-tax returns overstate the value of standard financial assets relative to wine; and that wine investment provides value in terms of allowing portfolio risk to be reduced.
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