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What Determines the Future Value of an Icon Wine? Evidence from Australia

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Author Info

  • Danielle Wood

    ()
    (Productivity Commission, Melbourne, Australia)

  • Kym Anderson

    ()
    (School of Economics, University of Adelaide, Australia)

Abstract

The Australian wine auction market is characterised by large variations in price between different vintages of the same wine. Yet the release prices of those wines exhibit considerably less volatility. This paper addresses the question: to what extent can we anticipate the future price of such icon wines from information available at the time of release? Specifically, it looks at the importance of the weather conditions during the grape-growing season. A hedonic model is estimated to explain the variation in price between different vintages using several weather variables plus dummy variables for capturing changes in winemaking and grape growing techniques. The model is estimated using auction price data for four South Australian icon red wines: three by Penfolds (Grange, St Henri and Bin 707), and one by HenschkeÂ’s (Hill of Grace). We show that weather variables and changes in production techniques, along with the age of the wine, have significant power in explaining the secondary market price variation across different vintages of each wine. The results have implications for winemakers in determining the prices they pay for grapes and charge for their wines, and for consumers/wine investors as a guide to the quality of immature icon wines.

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File URL: http://www.adelaide.edu.au/cies/papers/0233.pdf
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Bibliographic Info

Paper provided by University of Adelaide, Centre for International Economic Studies in its series Centre for International Economic Studies Working Papers with number 2002-33.

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Length: 39 pages
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:adl:cieswp:2002-33

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Related research

Keywords: Wine quality; Investment under uncertainty; Hedonic pricing model;

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References

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  1. Landon, Stuart & Smith, Constance, 1998. "Quality expectations, reputation, and price," MPRA Paper 9774, University Library of Munich, Germany.
  2. A. Golan & H. Shalit, 1993. "Wine Quality Differentials In Hedonic Grape Pricing," Journal of Agricultural Economics, Wiley Blackwell, vol. 44(2), pages 311-321.
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Cited by:
  1. San Martin, Guillermo S. & Brummer, Bernhard & Troncoso, Javier L., 2008. "Determinants Of Argentinean Wine Prices In The U.S. Market," Working Papers 37327, American Association of Wine Economists.

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