Hedonic Wine Price Functions and Measurement Error

Abstract

Accumulated theoretical and empirical evidence suggests that wine prices depend on quality, reputation and objective characteristics. Unlike previous studies, we recognize that quality and reputation are latent constructs and therefore employ factor analysis and 2SLS techniques to consistently estimate hedonic prices in the presence of attributes measured with error. The application to Australian premium wines points to signi¢cant reputation e¡ects but insigni¢cant quality e¡ects. It is also illustrated that inappropriately using standard OLS procedures can seriously distort the statistical signi¢c-ance of attributes, the implicit marginal attribute prices, and the predictions of`average' prices for a given set of characteristics.

Eco-Labeling Strategies and Price-Premium

“…Earlier work has queried the effects of wine characteristics on price. Oczkowski (1994Oczkowski ( , 2001) determines the relationship of reputation to the price of premium wine controlling for varietal, vintage, region, and a professional quality metric. Others ask whether these quality indicators factor in the price of wine; Combris, Lecocq, and Visser (1997) find that professional quality ratings do not predict Bordeaux wine prices.…”

What Determines Wine Prices: Objective vs. Sensory Characteristics

“…Finally, Oczkowski (2001) estimates a hedonic equation for Australian wines and considers the effects of some objective characteristics (red wine or not, old vintage or not), a quality index (a score assigned to the wine based on the International Show Judging System that allocates 50 percent of the score for palate, 35 percent for nose and 15 percent for color), and a reputation index (a score reflecting the long-term quality over numerous vintages). 3 He argues that the quality and reputation variables are measured with error.…”

Czech wine consumers: maturing with age?

“…Three age groups were defi ned to describe the youngest generation of wine drinkers (aged [18][19][20][21][22][23][24][25], the middle generation (aged [26][27][28][29][30][31][32][33][34][35][36][37][38][39][40][41][42][43][44][45] and the oldest generation (aged 46 and more). The results from the scale questions were compared between these age groups in order to identify differences in behaviour.…”

“…The most important extrinsic factor for wine purchase is price [42]. In situations when consumers cannot decide a purchase by considering only intrinsic factors, they often use price because of its expected positive correlation with quality.…”