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Identifying the effect of unobserved quality and expert reviews in the pricing of experience goods: Empirical application on Bordeaux wine

  • Dubois, Pierre
  • Nauges, Céline

We propose a structural empirical approach à la Olley and Pakes (1996) 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 "en primeur" market of Bordeaux, 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.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 28 (2010)
Issue (Month): 3 (May)
Pages: 205-212

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Handle: RePEc:eee:indorg:v:28:y:2010:i:3:p:205-212
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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