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

Author

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  • Dubois, P.
  • Nauges, C.

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.

Suggested Citation

  • Dubois, P. & Nauges, C., 2006. "Identifying the effect of unobserved quality and experts' reviews in the pricing of experience goods : empirical application on Bordeaux wine," Economics Working Paper Archive (Toulouse) 200607, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse).
    • Handle: RePEc:rea:inrawp:200607
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    2. Kugler, Peter & Kugler, Claudio, 2010. "Parker, Wine Spectator and Retail Prices of Bordeaux Wines in Switzerland: Results from Panel Data 1995 - 2000," Working papers 2010/10, Faculty of Business and Economics - University of Basel.
    3. Onur, Ilke & Bruwer, Johan & Lockshin, Larry, 2020. "Reducing information asymmetry in the auctioning of non-perishable experience goods: The case of online wine auctions," Journal of Retailing and Consumer Services, Elsevier, vol. 54(C).
    4. Clarissa Laura Maria Spiess Bru, 2023. "Does the Tasting Note Matter? Language Categories and Their Impact on Professional Ratings and Prices," Working Papers Dissertations 105, Paderborn University, Faculty of Business Administration and Economics.
    5. Stephen Bazen & Jean-Marie Cardebat & Magalie Dubois, 2024. "The role of customer and expert ratings in a hedonic analysis of French red wine prices: from gurus to geeks?," Applied Economics, Taylor & Francis Journals, vol. 56(46), pages 5513-5529, October.
    6. Stephen Bazen & Jean Marie Cardebat & Magalie Dubois, 2022. "From Gurus to Geeks? The Role of Customer and Expert Ratings in a Hedonic Analysis of French Red Wine Prices," Working Papers hal-03891458, HAL.
    7. Franken, Jason R. V. & Bacon, Kevin J., 2014. "Organizational Structure and Operation of the Illinois Wine Industry," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 43(01), pages 1-21, April.
    8. Christopher R. Gustafson & Travis J. Lybbert & Daniel A. Sumner, 2016. "Consumer sorting and hedonic valuation of wine attributes: exploiting data from a field experiment," Agricultural Economics, International Association of Agricultural Economists, vol. 47(1), pages 91-103, January.
    9. Dieter Pennerstorfer & Christoph Weiss & Andreas Huber, 2019. "Experts, Reputation and Umbrella Effects: Empirical Evidence from Wine Prices," Economics working papers 2019-08, Department of Economics, Johannes Kepler University Linz, Austria.
    10. Nicolas Lagios & Pierre‐Guillaume Méon, 2024. "Experts, Information, Reviews, and Coordination: Evidence on How Prizes Affect Sales," Journal of Industrial Economics, Wiley Blackwell, vol. 72(1), pages 49-80, March.
    11. Olivier Bargain & Jean‐Marie Cardebat & Raphaël Chiappini, 2023. "Trade uncorked: Genetic distance and taste‐related barriers in wine trade," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(2), pages 674-708, March.
    12. Bonnet, Céline & Hilger, James & Villas-Boas, Sofia B., 2017. "Reduced Form Evidence on Belief Updating under Asymmetric Information - The Case of Wine Expert Opinions," TSE Working Papers 17-834, Toulouse School of Economics (TSE), revised May 2019.
    13. Pecchioli, Bruno & Moroz, David, 2023. "Do geographical appellations provide useful quality signals? The case of Scotch single malt whiskies," Economic Modelling, Elsevier, vol. 124(C).
    14. Livat, Florine & Alston, Julian M. & Cardebat, Jean-Marie, 2019. "Do denominations of origin provide useful quality signals? The case of Bordeaux wines," Economic Modelling, Elsevier, vol. 81(C), pages 518-532.
    15. Coublucq, Daniel, 2013. "Econometric analysis of productivity with measurement error: Empirical application to the US Railroad industry," DICE Discussion Papers 95, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    16. Mert Hakan Hekimoğlu & Burak Kazaz, 2020. "Analytics for Wine Futures: Realistic Prices," Production and Operations Management, Production and Operations Management Society, vol. 29(9), pages 2096-2120, September.
    17. Tiago Ribeiro & Armando Corsi & Larry Lockshin & Jordan Louviere & Simone Mueller Loose, 2020. "Analysis of consumer preferences for information and expert opinion using a discrete choice experiment," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 19(1), pages 67-80, January.
    18. Man Yu & Hyun-Soo Ahn & Roman Kapuscinski, 2015. "Rationing Capacity in Advance Selling to Signal Quality," Management Science, INFORMS, vol. 61(3), pages 560-577, March.
    19. Edward Oczkowski, 2019. "The relation between Australian wine show results and prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 63(3), pages 389-411, July.
    20. Kugler, Peter, 2010. "Grosse Währung eines kleinen Landes: Der Schweizer Franken 1850 bis?," Working papers 2010/09, Faculty of Business and Economics - University of Basel.
    21. Bruno Pecchioli & David Moroz, 2023. "Do geographical appellations provide useful quality signals? The case of Scotch single malt whiskies," Post-Print hal-04144070, HAL.
    22. Emmanuel Paroissien & Michael Visser, 2020. "The Causal Impact of Medals on Wine Producers' Prices and the Gains from Participating in Contests," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(4), pages 1135-1153, August.

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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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