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Strategic Implications of the Relationship Between Price and Willingness to Pay: Evidence from a Wine-Tasting Experiment

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  • Lewis, Geoffrey
  • Zalan, Tatiana

Abstract

We empirically examine the relationship between price and willingness to pay (WTP) for wines by conducting a wine-tasting experiment with a manipulation of price similar to that used by Plassman et al. (2008); that is, with the same wines being presented at different prices. We find that for non-expert wine consumers a complex interaction exists between wine appreciation, price and WTP. The key conclusions from the study are that for non-expert wine consumers (1) there is no relationship between intrinsic wine character and enjoyment (individuals rated the same wines quite differently), and (2) price influences both appreciation of wine and WTP, but the latter more strongly. Buying decisions are determined by consumer surplus (the difference between WTP and price), and yet, for non-expert wine drinkers, WTP is itself strongly influenced by price. This complex interaction between the factors that determine buying behavior has strategic implications for competitors in the wine industry. We suggest an understanding of the relationship between WTP and price can be used to shed light on the crisis recently experienced by the Australian wine industry. (JEL Classifications: C91, D03, M30)

Suggested Citation

  • Lewis, Geoffrey & Zalan, Tatiana, 2014. "Strategic Implications of the Relationship Between Price and Willingness to Pay: Evidence from a Wine-Tasting Experiment," Journal of Wine Economics, Cambridge University Press, vol. 9(2), pages 115-134, August.
    • Handle: RePEc:cup:jwecon:v:9:y:2014:i:02:p:115-134_00
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    Citations

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    Cited by:

    1. Gregory Colson & Jay R. Corrigan & Carola Grebitus & Maria L. Loureiro & Matthew C. Rousu, 2016. "Which Deceptive Practices, If Any, Should Be Allowed in Experimental Economics Research? Results from Surveys of Applied Experimental Economists and Students," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(2), pages 610-621.
    2. Palma, Marco A. & Ness, Meghan L. & Anderson, David P., 2015. "Buying More than Taste? A Latent Class Analysis of Health and Prestige Determinants of Healthy Food," 2015 Conference (59th), February 10-13, 2015, Rotorua, New Zealand 202566, Australian Agricultural and Resource Economics Society.
    3. Just, David R., 2019. "Viewpoint: Is the ban on deception necessary or even desirable?," Food Policy, Elsevier, vol. 83(C), pages 5-6.
    4. Boonsaeng, Tullaya & Murova, Olga & Velikova, Natalia, 2023. "A Comparative Analysis of Changes in Consumers’ Perceptions and Attitudes toward Local Wines in an Emerging Wine Region," Journal of Food Distribution Research, Food Distribution Research Society, vol. 54(2), July.
    5. Palma, David & Ortúzar, Juan de Dios & Rizzi, Luis Ignacio & Guevara, Cristian Angelo & Casaubon, Gerard & Ma, Huiqin, 2016. "Modelling choice when price is a cue for quality: a case study with Chinese consumers," Journal of choice modelling, Elsevier, vol. 19(C), pages 24-39.
    6. Marco A. Palma & Meghan L. Ness & David P. Anderson, 2017. "Fashionable food: a latent class analysis of social status in food purchases," Applied Economics, Taylor & Francis Journals, vol. 49(3), pages 238-250, January.
    7. Sharma, Sadikshya & Kreye, Melissa M., 2022. "Social value of bird conservation on private forest lands in Pennsylvania, USA," Ecological Economics, Elsevier, vol. 196(C).
    8. Palma, Marco & Ness, Meghan & Anderson, David, 2015. "Prestige as a Determining Factor of Food Purchases," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196694, Southern Agricultural Economics Association.

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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