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Prices as Quality Signals: Evidence from the Wine Market

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  • Schnabel Hubert

    (Vereinigte Hospitien Trier)

  • Storchmann Karl

    (New York University)

Abstract

In this paper we empirically analyze whether prices serve as signals. Specifically, and following the hypothesis by Bagwell and Riordan (1991), we examine whether (1) higher quality and (2) low consumer information levels about quality are associated with prices that are above the full information equilibrium. We refer to two price samples of identical wines and analyze the difference between both. The first sample consists of prices for informed wholesalers who can taste the wines before purchase. The second sample comprises retail prices for the imperfectly informed public. We find support for the Bagwell-Riordan model, i.e., price signals respond positively to wine quality and negatively to increasing information. For our sample, the information effect by far dominates the quality effect.

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Bibliographic Info

Article provided by De Gruyter in its journal Journal of Agricultural & Food Industrial Organization.

Volume (Year): 8 (2010)
Issue (Month): 1 (February)
Pages: 1-23

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Handle: RePEc:bpj:bjafio:v:8:y:2010:i:1:n:2

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Cited by:
  1. Orley C. Ashenfelter & Karl Storchmann, 2010. "Measuring the Economic Effect of Global Warming on Viticulture Using Auction, Retail, and Wholesale Prices," NBER Working Papers 16037, National Bureau of Economic Research, Inc.
  2. Antonis Michis & Anna Markidou, 2013. "Determinants of retail wine prices: evidence from Cyprus," Empirical Economics, Springer, vol. 45(1), pages 267-280, August.

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