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

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Author Info
Dubois, Pierre
Nauges, Celine

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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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Paper provided by American Association of Wine Economists in its series Working Papers with number 37320.

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Date of creation: Nov 2007
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Handle: RePEc:ags:aawewp:37320

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Web page: http://www.wine-economics.org
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Related research
Keywords: quality signaling; wine price; wine market; expert ratings; Demand and Price Analysis; Industrial Organization;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Victor Ginsburgh, 2003. "Awards, Success and Aesthetic Quality in the Arts," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 99-111, Spring. [Downloadable!] (restricted)
  2. Philippe Mahenc, 2004. "Influence of Informed Buyers in Markets Susceptible to the Lemons Problem," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 86(3), pages 649-659, 08. [Downloadable!] (restricted)
  3. Landon, Stuart & Smith, Constance, 1998. "Quality expectations, reputation, and price," MPRA Paper 9774, University Library of Munich, Germany. [Downloadable!]
  4. Héla Hadj Ali & Sébastien Lecocq & Michael Visser, 2005. "The impact of gurus : Parker grades and en primeur wine prices," Research Unit Working Papers 0507, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
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  5. Mahenc, Philippe & Meunier, Valerie, 2003. " Forward Markets and Signals of Quality," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 478-94, Autumn.
  6. Landon, Stuart & Smith, Constance, 1997. "The Use of Quality and Reputation Indicators by Consumers: The Case of Bordeaux Wine," MPRA Paper 9283, University Library of Munich, Germany. [Downloadable!]
  7. Héla Hadj Ali & Céline Nauges, 2007. "The Pricing of Experience Goods: The Example of" en primeur" Wine," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 89(1), pages 91-103, 02. [Downloadable!] (restricted)
  8. Tirole, Jean, 1996. "A Theory of Collective Reputations (with Applications to the Persistence of Corruption and to Firm Quality)," Review of Economic Studies, Blackwell Publishing, vol. 63(1), pages 1-22, January. [Downloadable!] (restricted)
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  1. Ali, Hela Hadj & Lecocq, Sebastien & Visser, Michael, 2007. "The Impact of Gurus: Parker Grades and EN PRIMEUR Wine Prices," Working Papers 37292, American Association of Wine Economists. [Downloadable!]
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