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Identifying the effect of unobserved quality and experts' reviews in the pricing of experience goods : empirical application on Bordeaux wine

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Author Info
Dubois, P.
Nauges, C.

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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 quality leads to over-estimate the influence of experts" grades on the "primeur" price. ...French Abstract : Lorsqu'un bien d'expérience est délivré sur le marché, l'opinion des experts est supposée donner de l'information sur la qualité du bien aux futurs consommateurs. Cependant, savoir si l'opinion des experts affecte la formation des prix par elle-même reste une question empirique difficile à répondre. En effet, la vraie qualité inobservée du bien rend l'opinion des experts nécessairement endogène dans une équation de prix hédonique pour des biens d'expérience. En utilisant un panel de données sur les vins de Bordeaux, les auteurs proposent une approche structurelle permettant de séparer la valeur de l'information sur la qualité donnée par les experts de l'effet de la vraie qualité.

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Paper provided by French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse) in its series Economics Working Paper Archive (Toulouse) with number 200607.

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Length: 34 p.
Date of creation: 2006
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Handle: RePEc:rea:inrawp:200607

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Related research
Keywords: EXPERIENCE GOOD; EXPERTS' GRADES; QUALITY; WINE; IDENTIFICATION; STRUCTURAL ECONOMETRICS ; ECONOMETRIE; EXPERT; QUALITE DES PRODUITS; VIN DE BORDEAUX; PANEL ; BIEN D'EXPERIENCE;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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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. 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)
  2. 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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  3. 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)
  4. 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)
  5. Landon, Stuart & Smith, Constance, 1998. "Quality expectations, reputation, and price," MPRA Paper 9774, University Library of Munich, Germany. [Downloadable!]
  6. 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.
  7. 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!]
  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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