SHORT COMMUNICATION Wine Price and Quality: In Search of a Signaling

ABSTRACT Wine varies greatly in price and quality. In the limited sample we study here, 2001 California Cabernet Sauvignon wines rated by an expert in Wine Spectator, price ranges from $7 to $300 per bottle. Similarly, quality ratings on a 100-point scale range from 68 to 96 points. Our purpose here is twofold. First, we wish to estimate empirically a relationship between price and quality rating. Second, we hope to provide a discussion of characteristics of wine markets that might help refocus theoretical economic research on the wine price-quality relationship. Specifically, we suggest a movement away from hedonic pricing methods and their reliance on assumptions of competitive markets and perfect information. Rather, we suggest that imperfect competition and imperfect, asymmetric information characterize wine markets, and that the theoretical underpinnings of empirical work need to recognize this fact. The Wine Price-Quality Relationship in the Wine Literature Most explorations of the relationship between wine price and wine quality appeal to hedonic pricing, where the price of a good is a function of its characteristics (Lancaster, 1966; Rosen, 1974). Hedonic regression models, with quality as one characteristic, ar