In this paper, we analyze profit margins and markups of Fair Trade (FT) wines sold in the United States. We are particularly interested in whether and to what extent the FT cost impulse in production is passed along to the supply chain. We draw on a limited sample of about 470 South African wines sold in Connecticut and New Jersey in the fall of 2016; about 90 of them are certified FT. For these wines we have free on board export prices, wholesale prices, and retail prices, which allows us to compute wholesale and retail margins and analyze the FT treatment effect. We run OLS, 2SLS, and propensity score matching models and find evidence of asymmetrical pricing behavior. While wholesalers seem to fully pass-through the FT cost effect, retailers appear to amplify the cost effect. As a result, at the retail level, FT wines yield significantly higher margins than their non-FT counterparts. (JEL Classifications: L11, L31, L43, L81, Q17)

In this paper, we compare three ranking methods in wine tasting in terms of their respective accuracy levels. The first two are the original-score average and rank average, which are conventional methods in practice. The third is a relatively new ranking method called Shapley ranking. It is a game-theory-based ranking method, whereby judges are required not to rank order or score all the wines but only to choose a subset that they find meritorious. A simulation study is designed, wherein the data-generating scheme mimics how the real wine-tasting data are produced. We also consider two criteria in the comparison: the squared-error loss, which is a suitable measure when accurate ranking of all wines is of interest; and the percentile loss, which only considers whether the wines are correctly put in a certain subset. The main conclusion from our study is that the ranking based on score average is generally more accurate than that based on rank average. Shapley ranking, with the consideration that it puts less burden on judges in wine tasting, may outperform the other methods in certain conditions. (JEL Classifications: C11, C15, D72, D81)

Wine tastings inevitably involve some form of grading or ranking the wines, since the objective of tastings is to determine which wine is best, second best, etc., at least among the tasters on that particular occasion. Much has been written about the care that has to be taken that judges are not influenced by extraneous and irrelevant factors and that they do not influence one another. Ultimately, of course, the views of the judges need to be congealed in a single ranking that expresses the “social preference” among the wines. And therein lies the rub: how to aggregate individual preferences into a social ranking.

The Italian market of sparkling wines increases as volume and assortment (such as brands, appellations, typologies) mainly because of sparkling Prosecco consumption. We investigate the repeated purchase behavior of sparkling wines in two years within the supermarket channel through scanner data collected from a consumer panel. We propose a Hidden Markov Model to analyze these data, assuming an unobservable process to capture consumers’ preferences and allowing us to consider purchases sparsity over time. We consider multivariate responses defining types of purchases, namely price, appellation, and sugar content. Customers’ covariates influence the initial and transition probabilities of the latent process. We identify five market segments, and we track their evolution over time. One segment includes Prosecco-oriented consumers, and we show that loyalty to Prosecco changes strongly over time according to the region of residence, income, and family type. The findings improve the understanding of the market and may provide evidence to design successful marketing strategies. (JEL Classifications: C33, C51, D12, L66)

The contract between growers and merchants for the exchange of grapes on the Champagne market is a long-term agreement based on quantities. Commitments on quantities are made for several years and negotiated individually between growers and merchants. Each year, prices are negotiated at the interprofessional level, the interprofessional committee including members of the growers union, members of the merchants union and a government commissioner. It turns out that industrial organization theory, and more precise mechanisms outlined by incomplete contract theory are relevant to the analysis of such contracts in which prices and quantities are negotiated sequentially and by different groups of actors. We show that imposed pricing by the interprofessional organization can, in some cases, balance the bargaining power between growers and merchants and thus increase social welfare. At a time when the European Common Organization of Wine Markets casts doubt on interprofessional organizations, this result tends to justify their positive role. (JEL classifi cation: L42, L50)

To determine whether globalization is good for wine drinkers in the U.S., we examine the Wine Spectator's annual Top 100 lists, published since 1988. During this period, the average real price for these wines decreases from $43 to $26. Quality is consistent at around 93 points. Variety increases from six to twelve countries; the share of countries dominating the early lists declines from 95% to 75% over time. Our regression analysis indicates that when a New-New World wine replaces an Old World one, the average real price of the Top 100 list falls by 2.5%. (JEL Classification: F120, F140, C200)

“My only regret in life is that I did not drink more champagne.” (John Maynard Keynes) (Harod, 1951, p. 15)

Global consumption patterns for alcoholic beverages are evolving, with some convergence in per capita consumption among nations, as traditionally beer-drinking nations increase their consumption of wine and, conversely, wine-consuming nations shift towards beer. In a forthcoming article (Hart and Alston, 2019), we explore regional patterns of alcoholic beverage consumption within the United States. One purpose is to see if similar patterns of spatial convergence in consumption patterns can be observed within countries as have been documented in international comparisons. A more fundamental purpose is to explore the converse question and seek to better understand the persistent differences in alcoholic beverage consumption among groups. These issues are addressed using annual U.S. national and state-level data over four decades and, for the more recent period, supermarket scanner data at finer scales of geopolitical aggregation. This proceedings article focuses on the analysis using supermarket scanner data. We find that socioeconomic and demographic variables appear to play significant roles in accounting for the spatial differences in consumption patterns. (JEL Classifications: D12, L66)

An impartial assessment of the quality of the wine produced over the years in a region (vintage quality) is an essential tool for producers, consumers, investors, and wine researchers to understand factors influencing quality and make purchasing or investing decisions. However, scoring the overall wine quality over the years does not necessarily produce a consensus of which year or years are best. Several critics, magazines, and organizations publish vintage charts that assign a score to each vintage, representing the corresponding perception of the wine quality. Often, the scores given by different institutions reveal little consensus with respect to the relative quality of the vintages.

In this work, we propose the utilization of a rank aggregation method to combine a collection of vintage charts for a region into a ranking of the vintages that represents the consensus of the input vintage charts. As a result, we obtain an impartial ranking of the vintages that represents the consensus of an arbitrary number of independent vintage charts. We illustrate the method with the scores from three wine regions.

The proposed method produces a ranking of vintage-to-vintage quality that represents an impartial consensus of a collection of independent sources, each using a different rating format, scale, or classification. Such a ranking has the potential to be useful for the research community, which needs a relative measure of wine production quality over the years. Therefore, we make publicly available a software tool that implements the method (Borges, 2011). (JEL Classification: C38, C61, C88)

Wine grapes contribute significantly to the economy of California, with a gross production value of more than $2 billion in 2010. Studies on economic issues in the industry require measures of demand response to price, but despite the economic importance of this industry, estimates of elasticities of demand for wine grapes have not been published. We use a flexible-form inverse demand system model to estimate elasticities of demand for wine grapes from three grape-growing regions in California, representing three different quality (price) categories. The resulting estimates of own-price elasticities are high, ranging from −2.6 for grapes in the low-price region to −9.5 for grapes in the high-price region. Such high elasticities are plausible given the role of international trade in wine, and they are consistent with synthetic estimates that we computed based on a combination of economic theory, data on market shares, estimates of some pertinent parameters in the literature, and informed guesstimates of values for other parameters. (JEL Classification: Q11, Q12, Q13)

We specify a two-tier stochastic frontier model to estimate a price equation for U.S. Rieslings and determine overpricing and underpricing of specific wines. The data is for 2000–2016. Using tasting score and tasting score squared as sole independent variables, we found evidence of overpricing and underpricing of wines. When additional location variables were entered, empirical estimates for this two-tier model were infeasible, suggesting that both underpricing and overpricing did not occur simultaneously in this market. Separate one-sided stochastic frontier models were then specified and estimated to test for either under or overpricing in this market. Results showed that overpricing exists and not underpricing, but the extent of overpricing is minor, suggesting that wineries do an efficient job pricing their wines, given tasting scores, conditional on regional location premiums or discounts. We also investigated the effect of scale on pricing for a smaller set of wineries. (JEL Classifications: C4, D4, Q1)

We build on Hart and Holmstrom (2010) to analyze the strategic choice of organizational form among wine producers. They claim that a firm's organizational form, when agreed upon competitively, conditions the sense of entitlement of the involved parties. The sense of entitlement determines their feeling of grievance for the outcome of the contract and, if so, their shading efforts by partially withholding consummate performance, creating deadweight losses. We consider two main organizational forms: non-integration, where growers interact in the winemaking process and can highlight the quality of their individual contributions, and integration, where individual contributions to the process may not be explicitly acknowledged and the winemaker cannot exert quality control over the production chain. We present a formal coordination model that illustrates how cooperatives and private firms can coexist within a market. Furthermore, given the reasonable parameter constraints, it illustrates how an integrated cooperative can obtain a higher social surplus than a non-integrated private firm. (JEL Classifications: C72, L22, L66)

We consider the impact of taxes on the quantity and quality produced by a competitive firm of goods, such as wine, for which market value accrues with age. Our analysis found the following: an increase in the volumetric retail tax collected at sale increases quality, so that the basic Alchian-Allen effect holds. However, an increase in the volumetric storage tax collected each period decreases quality, as does an increase in the ad valorem storage tax. The effect of an increase in the ad valorem retail tax on quality is indeterminate. Increases in any of the four taxes reduce the quantity of wine produced. Any two-tax system that includes a volumetric sales tax spans the full range of feasible tax revenues with positive tax rates. For any tax system that reduces quality relative to the firm's no-tax equilibrium, there is another tax system that increases tax revenues, eliminates the quality distortion, and does not increase the quantity distortion. Many wine industry observers believe that most, if not all, existing tax systems tend to result in the suboptimal provision of quality. Our results suggest that the wide variety of wine tax systems is not prima facie evidence that these systems, or most of them, are inefficient. Provided the system includes a volumetric sales tax it may be efficient, regardless of which of the other instruments, or how many of them, are used. Assertions regarding inefficiency must be evaluated on an empirical case-by-case basis. Our analysis provides a theoretical framework for such research. (JEL Classification: D2, H2, Q1)

This paper explores the nonlinearities of the bivariate distribution of Bordeaux en primeur, or wine futures, prices and Parker “barrel ratings” for the period of 2004 through 2010. In particular, copula-function methodology is introduced and employed to examine the nature of the bivariate distribution. Our results show a significant nonlinear relationship between Parker ratings and wine prices, characterized by significant positive tail dependence and higher correlation between high ratings and high prices. Marginal distributions for Parker ratings and wine prices are then identified and Monte Carlo simulation is employed to operationalize the relationship for risk-management purposes. (JEL Classifications: C19, G13, L66)

This paper analyzes the determinants of Cognac brandy exports using a unique database on Cognac shipments to more than 140 destinations between 1996 and 2013. We use this database to construct descriptive statistics concerning the evolution of Cognac exports during this period. We also construct a database of protectionist policies that affect worldwide Cognac exports. We analyze the determinants of Cognac exports and base our empirical strategy on Heckman's (1979) procedure. We estimate successively the impact of geographical, demand and policy factors on the extensive margin of trade and the intensive margin of trade. We also control for the possibility of an endogeneity bias on the probability of trade. We show that i) as with other luxury products, the elasticity of Cognac exports to distance is negative, significant, and relatively small, while the elasticity to gross domestic product (GDP) is positive, significant, and relatively large; and ii) average customs duties do not have a significant impact on the intensive margin but significantly and positively affect the probability of trade. We discuss this last result and correct the endogeneity bias using tax revenues of importing countries in percentage of GDP as an instrument. (JEL Classifications: F10, F14)

Another quiet revolution is taking place in the alcoholic beverage markets: a trend toward lower-alcohol and even no-alcohol beverages, especially in the world's higher-income countries. This new trend adds to the long-term consumer trend in affluent countries of substituting quality for quantity in many of their purchases (premiumization), which, in the case of alcoholic beverages, has been driven largely by a desire for a healthier lifestyle. More-affluent consumers also desire a greater variety than is typically available from large producers of regular products, which has led to a craft beverage revolution. Both desires—for lower-alcohol beverages and a greater variety of quality offerings—are driving this so-called low- or no-alcohol revolution. The trend is just beginning to show up in wine (and spirits) markets, but it began developing much earlier in beer markets. The purpose of this paper is to explore the extent of the latter and the consumer forces behind it. Since Australian brewers are leading the way globally in building various Lo-No beer categories, and thereby contributing substantially to lowering that nation's alcohol consumption, its trends are highlighted and compared with global trends. The paper concludes by drawing out lessons and prospects for lower-alcohol beer and wine.

We identify and examine the performance of frontier investments from 2002 to 2017. Using fine wine as a setting, we find that the trade frequency and value of frontier investments in the form of Alpine wines have increased in recent years, leading to a rise in their prices above inflation rates. We further document that this frontier investment has been favorable in terms of risk-adjusted returns and volatility for investors. We also observe that the inclusion of frontier wines in a financial portfolio is favorable for investors, both in terms of returns and diversification benefits, due to low correlation coefficients. The identification and investment into frontier assets appears beneficial for investors looking for new opportunities. (JEL Classifications: C60, G11, Q11)

We present a simple static way of optimizing the prices of bottles of wine for restaurants with a given cellar. In contrast to classical assortment pricing models, we posit that the cellar (i.e., inventory) is given and is not taken as a variable entering the optimization program. In our model, the optimal price is driven mainly by a rating parameter after the effect of initial cost is removed. This parameter plays the role of a dominant characteristic in hedonic models, even though the levels of stocks may also be determinant when they are very low. We provide a numerical sensitivity analysis of prices to various parameters and study a realistic large-scale example based on two wine lists with 50 bottles each. Finally, several extensions are discussed. (JEL Classifications: C61, L11, L83)

The wine industry in the United States has grown tremendously over the past few decades, from fewer than 1,000 wineries in 1980 to upward of 8,500 today. The growth has occurred over a period that has seen substantial changes in the structure of the wine industry, the modes of distribution available to wineries, and the regulations governing them. Most economic research, however, has focused on supply relations between wineries and wine grape growers rather than between wineries and their downstream markets. In this article, we examine wineries' contracting behavior with downstream distributors and the effects of industry structure, winery organizational structure, and state laws regarding direct shipment and distribution franchise laws. (JEL Classifications: D23, L14, L22, L66)

Agricultural cooperatives’ economic performance and efficiency today have great economic and social relevance. Consistent with the recent literature, this article examines wine cooperatives and compares them with wine investor-owned firms, studying their innovation capabilities, Miles and Snow strategies, and performance. A survey was conducted in all the wineries in Spain, with 339 responses. The interactions between the independent variables and the dependent variable were analyzed using the logit regression model. The study points out that cooperatives do not have fewer innovation capabilities, nor are they more inefficient, than investor-owned firms, although the factors that modulate their economic performance are different. (JEL Classifications: L66, M10, P13, Q13)