Impacts of regional designations on prices

This paper examines the economic returns to regional designations present in agricultural markets. Geographical indications (GIs) define region-based collections of producers sharing terroir. Exploiting this geography-quality nexus, firms employ GIs to signal product quality to consumers. We examine how increasing the number of regional designations in a fixed geographical area affects prices. The model incorporates a familiarity term, which decreases in the number of regions and directly affects consumers’ abilities to use information about firm- and region-specific product quality. As the number of GIs increases, the relationship with prices increases to a point and then falls. The results suggest a crowding out of the benefits of regional specificity with significant impacts on aggregate returns. We test these hypotheses with data on Washington wines and American Viticultural Areas (AVAs). Our findings suggest policies restricting the proliferation of GIs may increase firm-level revenues.