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Love or Money? The Effects of Owner Motivation in the California Wine Industry

  • Fiona M. Scott Morton

    ()

    (School of Management)

  • Joel M. Podolny

    ()

    (Organizational Behavior Unit)

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    Many industries are characterized by heterogeneous objectives on the part of firm owners. Owners of private firms, in particular, are likely to maximize utility, rather than profits. In this paper, we model and measure motivations of owners in on particular industry, the California wine industry. In both a formal model and an empirical analysis, we examine the implications of these motivations for market behavior. We find evidence that owners with strong non-financial motivations choose higher prices for their wines, controlling for quality; owners with strong profit-maximizing motives choose lower prices for their wines, controlling for quality. We also find that utility-maximizers are more likely to locate at the higher end of the quality spectrum, whereas profit-maximizers are more likely to locate at the lower end. We explore how the presence of a significant number of utility maximizers within an industry affects the competitive interactions within that industry. We conclude that some winery owners 'consume' features of their product or business as a substitute for profits and, in the process, provide softer price competition for for-profits. Additionally, in aggregate, their preference for quality can prevent entry into the high-quality segment on the part of profit-maximizing firms.

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    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=133631
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    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm101.

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    Date of creation: 29 Oct 1998
    Date of revision:
    Handle: RePEc:ysm:somwrk:ysm101
    Contact details of provider: Web page: http://icf.som.yale.edu/

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