Evidence of Convergence to a Signaling Equilibrium for California Wine 2001-2005

Abstract

Much research has examined Akerlof's "lemons" problem, however, very little has addressed convergence to a Spence signaling equilibrium. We examine this convergence issue by testing whether the explained variance in wine prices for California Cabernet Sauvignon improves as the same set of wines progress through subsets of consecutive years. The data are from Wine Spectator and organized in subsets of common wines for 2004 to 2005, 2003 to 2005, 2002 to 2005, and 2001 to 2005. We perform regressions of wine price on quality attributes for each year in each data subset. Using the R-square and mean square error from these regressions, we then perform a trend analysis to examine the factors influencing the improvement of the Rsquare through each year and each wine subset. We find that position or year in the wine subset is a significant determinant of goodness of fit after accounting for year and sample affects. This result, while not conclusive, may suggest some degree of wine price convergence within these subsets of wines.

Price Signalling Differentiated Experience Goods: Are Uniform Movie Prices a Puzzle?

“…Although observed across differentiated products of other kinds as well (e.g, downloadable music and tickets to football matches with different teams), uniform pricing across movies is perceived as particularly puzzling given the large variance both in their production costs and anticipated demand/popularity. 1 On the other hand, differential pricing is observed for various other experience goods, and some studies attribute a significant part of it to quality differences in some markets, such as wine (Miller, Stone, and Stuen, 2013).…”