Skip to main content
Top
Published in: Journal of Business Economics 2/2013

01-02-2013 | Original Paper

The impact of individual and collective reputation on wine prices: empirical evidence from the Mosel valley

Authors: Bernd Frick, Robert Simmons

Published in: Journal of Business Economics | Issue 2/2013

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

Although of considerable practical importance, the separate impact of individual and collective reputation on firm performance (e.g. product prices) has not yet been convincingly demonstrated. We use a sample of some 70 different wineries offering more than 1,300 different Riesling wines from the Mosel valley to isolate the returns to individual reputation (measured by expert ratings in a highly respected wine guide) from the returns to collective reputation (measured by membership in two different professional associations where members are assumed to monitor each other very closely). We find that both effects are statistically significant and economically relevant with the latter being more important in quantitative terms than the former.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Journal of Business Economics

From January 2013, the Zeitschrift für Betriebswirtschaft (ZfB) is published in English under the title Journal of Business Economics (JBE). The Journal of Business Economics (JBE) aims at encouraging theoretical and applied research in the field of business economics and business administration, promoting the exchange of ideas between science and practice.

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Appendix
Available only for authorised users
Footnotes
1
Most of these papers refer to or are based on the concept of “implicit promises” as developed by Macaulay (1963).
 
2
This is similar to the selection procedure in the US Major Leagues, where owners of incumbent franchises jointly decide on the location of new teams (see e.g. Quirk and Fort 1997, 1999).
 
3
Currently there are about 2,700 different (usually rather small) firms producing wine in the Mosel, Saar and Ruwer valleys (Statistische Ämter des Bundes und der Länder 2011: 26). Although most of them are clustered in small villages with at most 1,000 or 2,000 inhabitants, individual producers neither have the technology nor any incentives to monitor other producers. The resulting free-rider problem can only be overcome if a small number of producers jointly invest in an institutional arrangement designed to avoid moral hazard behavior on the one hand and to promote their products on the other hand.
 
4
Two years later, von Bruchhausen brought together similar associations that had developed in other German wine-growing regions. The new national organization was the forerunner of today’s “Verband Deutscher Prädikatsweingüter” (Association of German Quality Wine Estates, henceforth VDP).
 
5
Eggert et al. (2010) use data from the annual auctions 1994–2008 to analyze the impact of the level and the change in individual producer’s reputation on wine prices.
 
6
Anecdotal evidence suggests that being listed in this particular wine guide is considered the “key to success” by most winemakers.
 
7
Thus, all the wines in the sample were harvested 2 years prior to the publication of the respective annual edition of the wine guide we use in our econometric analysis. Apart from these 1,303 Riesling wines the estates included in the sample also produced a small number of wines from other grapes (n = 25), indicating that winemakers in the Mosel, Saar and Ruwer valleys are highly specialized. Including these 25 wines in the estimations has no effect on the results (these are, of course, available from the authors upon request).
 
8
Table 7 in the “Appendix” demonstrates that the distribution of wine qualities is similar across the three groups of wineries. Minor differences occur only in the middle of the quality distribution (Kabinett, Spätlese and Auslese), but neither at the bottom end (no label, Qualitätswein) nor at the top end (Beerenauslese, Eiswein and Trockenbeerenauslese) of the quality ranking. In each of the four harvest seasons included in the analysis (1992–1995) wines from all over the quality ranking are included in the analysis (a table displaying the distribution of the wines by harvest season and quality is available from the authors upon request).
 
9
Estimation of an OLS model with standard errors clustered by winery yields somewhat smaller coefficients for the two membership dummies (see Table 8 in the “Appendix”). At the same time, however, the individual reputation dummies are—with one notable exception (the highest reputation category)—slightly larger in the OLS than in the Hausman-Taylor estimation. As an additional robustness check we also estimated a fixed effects model and then related these to the membership dummies. It appears that the coefficient of BR is negative and significant (−0.103, t = −5.67) while the coefficient of VDP is positive and significant (+0.297, t = 19.18). The full results are, of course, available from the authors upon request.
 
10
Estimating the model with dummies for the different reputation categories results in a similar picture (see columns 5–7 of Table 3). As pointed out in Table 2 already, the coefficients exhibit a non-linear pattern, suggesting that there are considerable (additional) returns to “superstar winemakers”. Whether these returns are due to differences in talent (Rosen 1981) or due to differences in publicity (Adler 1985) remains to be tested.
 
11
We plan, of course, to expand our data set to include the most recent editions of “Gault Millau”. This allows us to better explore membership effects as we observe not only “late entries” but also (in-) voluntary exits. We can then address the question whether product prices increase/decrease upon change in membership status while controlling for time-varying wine quality and expert evaluations.
 
Literature
go back to reference Adler M (1985) Stardom and Talent. Am Econ Rev 75:208–212 Adler M (1985) Stardom and Talent. Am Econ Rev 75:208–212
go back to reference Akerlof G (1970) The market for lemons: quality uncertainty and the market mechanism. Quart J Econ 84:1007–1040 Akerlof G (1970) The market for lemons: quality uncertainty and the market mechanism. Quart J Econ 84:1007–1040
go back to reference Baltagi B (2008) Econometric Analysis of Panel Data, 4th edn. Wiley, New York Baltagi B (2008) Econometric Analysis of Panel Data, 4th edn. Wiley, New York
go back to reference Benfratello L, Piacenza M, Sacchetto S (2009) Taste or reputation: what drives market prices in the wine industry? Estimation of a Hedonic model for Italian premium wines. Appl Econ 41:2197–2209CrossRef Benfratello L, Piacenza M, Sacchetto S (2009) Taste or reputation: what drives market prices in the wine industry? Estimation of a Hedonic model for Italian premium wines. Appl Econ 41:2197–2209CrossRef
go back to reference Berger J, Sorensen A, Rasmussen S (2010) Positive effects of negative publicity: when negative reviews increase sales. Mark Sci 29:815–827CrossRef Berger J, Sorensen A, Rasmussen S (2010) Positive effects of negative publicity: when negative reviews increase sales. Mark Sci 29:815–827CrossRef
go back to reference Buraimo B, Forrest D, Simmons R (2009) Insights for clubs from modeling match attendance in football. J Operat Res Soc 60:147–155CrossRef Buraimo B, Forrest D, Simmons R (2009) Insights for clubs from modeling match attendance in football. J Operat Res Soc 60:147–155CrossRef
go back to reference Cabral LMB (2005) The Economics of Trust and Reputation: A Primer, mimeo, Stern School of Business. New York University, New York Cabral LMB (2005) The Economics of Trust and Reputation: A Primer, mimeo, Stern School of Business. New York University, New York
go back to reference Cardebat J-M, Figuet J-M (2004) What explains Bordeaux wine prices. App Econ Lett 11:293–296CrossRef Cardebat J-M, Figuet J-M (2004) What explains Bordeaux wine prices. App Econ Lett 11:293–296CrossRef
go back to reference Chevalier J, Mayzlin D (2006) The effect of word of mouth on sales: online book reviews. J Mark Res 43:345–354CrossRef Chevalier J, Mayzlin D (2006) The effect of word of mouth on sales: online book reviews. J Mark Res 43:345–354CrossRef
go back to reference Combris P, Lecocq S, Visser M (1997) Estimation of a hedonic price equation for Bordeaux wine: does quality matter? Econ J 1997:390–402CrossRef Combris P, Lecocq S, Visser M (1997) Estimation of a hedonic price equation for Bordeaux wine: does quality matter? Econ J 1997:390–402CrossRef
go back to reference Combris P, Lecocq S, Visser M (2000) Estimation of a Hedonic price equation for Burgundy wine. Appl Econ 32:961–967CrossRef Combris P, Lecocq S, Visser M (2000) Estimation of a Hedonic price equation for Burgundy wine. Appl Econ 32:961–967CrossRef
go back to reference Dranove D, Jin G (2010) Quality disclosure and certification: theory and practice. J Econ Lit 48:935–963CrossRef Dranove D, Jin G (2010) Quality disclosure and certification: theory and practice. J Econ Lit 48:935–963CrossRef
go back to reference Dubois P, Nauges C (2010) Identifying the effect of unobserved quality and experts’ reviews in the pricing of experience goods: empirical application on Bordeaux wine. Int J Ind Organ 28:205–212CrossRef Dubois P, Nauges C (2010) Identifying the effect of unobserved quality and experts’ reviews in the pricing of experience goods: empirical application on Bordeaux wine. Int J Ind Organ 28:205–212CrossRef
go back to reference Eggert A, Frick B, Hogreve J (2010) Corporate reputation and customers’ value perception: a dynamic analysis. In: Beckmann SC, Ringberg T, Ritter T (eds). The six senses—the essentials of marketing, proceedings of the 39th Annual Conference of the European Marketing Academy, Copenhagen 2010 Eggert A, Frick B, Hogreve J (2010) Corporate reputation and customers’ value perception: a dynamic analysis. In: Beckmann SC, Ringberg T, Ritter T (eds). The six senses—the essentials of marketing, proceedings of the 39th Annual Conference of the European Marketing Academy, Copenhagen 2010
go back to reference Eliashberg J, Shugan S (1997) Film critics: influencers or predictors? J Mark 61:68–78CrossRef Eliashberg J, Shugan S (1997) Film critics: influencers or predictors? J Mark 61:68–78CrossRef
go back to reference Elliott C, Simmons R (2009) Determinants of UK box office success: the impact of quality signals. Rev Ind Organ 33:93–112CrossRef Elliott C, Simmons R (2009) Determinants of UK box office success: the impact of quality signals. Rev Ind Organ 33:93–112CrossRef
go back to reference Fishman A, Rob R (2002) Is bigger better? Investing in reputation, mimeo. Department of Economics, Bar Ilan University, Ramat Gan Fishman A, Rob R (2002) Is bigger better? Investing in reputation, mimeo. Department of Economics, Bar Ilan University, Ramat Gan
go back to reference Friberg R, Grönqvist E (2012) Do Expert Reviews Affect the Demand for Wine? Am Econ J App Econ 4:193–211CrossRef Friberg R, Grönqvist E (2012) Do Expert Reviews Affect the Demand for Wine? Am Econ J App Econ 4:193–211CrossRef
go back to reference Frick B (2004) Does ownership matter? Empirical evidence from the German wine industry. Kyklos 57:357–386CrossRef Frick B (2004) Does ownership matter? Empirical evidence from the German wine industry. Kyklos 57:357–386CrossRef
go back to reference Gale D, Rosenthal RW (1994) Price and quality cycles for experience goods. Rand J Econ 25:590–607CrossRef Gale D, Rosenthal RW (1994) Price and quality cycles for experience goods. Rand J Econ 25:590–607CrossRef
go back to reference Gibbs M, Tapia M, Warzynski F (2009) Globalization, superstars and reputation: theory and evidence from the wine industry. J Wine Econ 4:49–64CrossRef Gibbs M, Tapia M, Warzynski F (2009) Globalization, superstars and reputation: theory and evidence from the wine industry. J Wine Econ 4:49–64CrossRef
go back to reference Greene WH (2011) Econometric Analysis, 7th ed., Pearson Greene WH (2011) Econometric Analysis, 7th ed., Pearson
go back to reference Hadj Ali H, Nauges C (2007) The pricing of experience goods: the example of En Primeur wines. Am J Agric Econ 89:91–103CrossRef Hadj Ali H, Nauges C (2007) The pricing of experience goods: the example of En Primeur wines. Am J Agric Econ 89:91–103CrossRef
go back to reference Hadj Ali H, Lecocq S, Visser M (2008) The impact of Gurus: Parker grades and En Primeur wines. Econ J 118:F158–F173CrossRef Hadj Ali H, Lecocq S, Visser M (2008) The impact of Gurus: Parker grades and En Primeur wines. Econ J 118:F158–F173CrossRef
go back to reference Hausman JA, Taylor WT (1981) Panel data and unobservable individual effects. Econometrica 49:1377–1398CrossRef Hausman JA, Taylor WT (1981) Panel data and unobservable individual effects. Econometrica 49:1377–1398CrossRef
go back to reference Hilger J, Rafert G, Villas-Boas S (2011) Expert opinion and the demand for experience goods: an experimental approach in the retail wine market. Rev Econ Stat 93:1289–1296CrossRef Hilger J, Rafert G, Villas-Boas S (2011) Expert opinion and the demand for experience goods: an experimental approach in the retail wine market. Rev Econ Stat 93:1289–1296CrossRef
go back to reference Ippolito PM (1990) Bonding and non-bonding signals of product quality. J Bus 63:41–60CrossRef Ippolito PM (1990) Bonding and non-bonding signals of product quality. J Bus 63:41–60CrossRef
go back to reference Jin G, Leslie P (2003) The effects of information on product quality: evidence from restaurant hygiene cards. Quart J Econ 118:409–451CrossRef Jin G, Leslie P (2003) The effects of information on product quality: evidence from restaurant hygiene cards. Quart J Econ 118:409–451CrossRef
go back to reference Klein B, Leffler KB (1981) The role of market forces in assuring contractual performance. J Polit Econ 89:615–641CrossRef Klein B, Leffler KB (1981) The role of market forces in assuring contractual performance. J Polit Econ 89:615–641CrossRef
go back to reference Landon S, Smith CE (1997) The use of quality and reputation indicators by consumers: the case of Bordeaux wine. J Consum Policy 20:289–323CrossRef Landon S, Smith CE (1997) The use of quality and reputation indicators by consumers: the case of Bordeaux wine. J Consum Policy 20:289–323CrossRef
go back to reference Landon S, Smith CE (1998) Quality expectations, reputations, and price. South Econ J 64:628–647CrossRef Landon S, Smith CE (1998) Quality expectations, reputations, and price. South Econ J 64:628–647CrossRef
go back to reference Macaulay S (1963) Non-contractual relations in business: a preliminary study. Am Sociol Rev 28:55–67CrossRef Macaulay S (1963) Non-contractual relations in business: a preliminary study. Am Sociol Rev 28:55–67CrossRef
go back to reference Mailath GJ, Samuelson L (2001) Who wants a good reputation? Rev Econ Stud 68:415–441CrossRef Mailath GJ, Samuelson L (2001) Who wants a good reputation? Rev Econ Stud 68:415–441CrossRef
go back to reference Quirk J, Fort RD (1997) Pay Dirt: The Business of Professional Team Sports. Princeton University Press, Princeton Quirk J, Fort RD (1997) Pay Dirt: The Business of Professional Team Sports. Princeton University Press, Princeton
go back to reference Quirk J, Fort R (1999) Hard Ball: The Abuse of Power in Pro Team Sports. Princeton University Press, Princeton Quirk J, Fort R (1999) Hard Ball: The Abuse of Power in Pro Team Sports. Princeton University Press, Princeton
go back to reference Reinstein D, Snyder C (2005) The influence of expert reviews on consumer demand for experience goods: a case study of movie critics. J Indus Econ 53:27–51CrossRef Reinstein D, Snyder C (2005) The influence of expert reviews on consumer demand for experience goods: a case study of movie critics. J Indus Econ 53:27–51CrossRef
go back to reference Rosen S (1981) The economics of superstars. Am Econ Rev 71:845–858 Rosen S (1981) The economics of superstars. Am Econ Rev 71:845–858
go back to reference Shapiro C (1982) Consumer information, product quality, and seller reputation. Bell J Econ 13:20–35CrossRef Shapiro C (1982) Consumer information, product quality, and seller reputation. Bell J Econ 13:20–35CrossRef
go back to reference Shapiro C (1983) Premiums for high quality products as returns to reputations. Quart J Econ 98:659–679CrossRef Shapiro C (1983) Premiums for high quality products as returns to reputations. Quart J Econ 98:659–679CrossRef
go back to reference Statistische Ämter des Bundes und der Länder (2011) Agrarstrukturen in Deutschland: Einheit in Vielfalt. Statistisches Landesamt Baden-Württemberg, Stuttgart Statistische Ämter des Bundes und der Länder (2011) Agrarstrukturen in Deutschland: Einheit in Vielfalt. Statistisches Landesamt Baden-Württemberg, Stuttgart
go back to reference Tadelis S (2002) The market for reputations as an incentive mechanism. J Polit Econ 110:854–882CrossRef Tadelis S (2002) The market for reputations as an incentive mechanism. J Polit Econ 110:854–882CrossRef
go back to reference Tirole J (1996) A theory of collective reputations (with applications to the persistence of corruption and to firm quality). Rev Econ Stud 63:1–22CrossRef Tirole J (1996) A theory of collective reputations (with applications to the persistence of corruption and to firm quality). Rev Econ Stud 63:1–22CrossRef
go back to reference Winfree JA, McCluskey JJ (2005) Collective reputation and quality. Am J Agric Econ 87:206–213CrossRef Winfree JA, McCluskey JJ (2005) Collective reputation and quality. Am J Agric Econ 87:206–213CrossRef
Metadata
Title
The impact of individual and collective reputation on wine prices: empirical evidence from the Mosel valley
Authors
Bernd Frick
Robert Simmons
Publication date
01-02-2013
Publisher
Springer-Verlag
Published in
Journal of Business Economics / Issue 2/2013
Print ISSN: 0044-2372
Electronic ISSN: 1861-8928
DOI
https://doi.org/10.1007/s11573-013-0652-x

Other articles of this Issue 2/2013

Journal of Business Economics 2/2013 Go to the issue