The economic organization of winemaking: French cooperatives and California corporations in historical context

Winemaking firms in California and southern France are organized quite differently. In this dissertation, I describe and analyze the economic changes and the structure of capabilities that make vinification cooperatives appropriate in southern France but not in California. I apply recent scholarship in the economics of organization to the different histories and institutional contexts of wine production in these regions, generating illustrations and refinements of organization theory. ^ I analyze choice of organizational form as a path-dependent, evolutionary phenomenon. But the path-dependence I discover is economic; it does not imply any remediable inefficiency. Therefore, I present theoretical efficiency-based explanations for the dominance of different organizational forms in their respective environments. These explanations derive empirical support from my field research in Southern France and the San Francisco Bay area, two wine regions which, early in their development, were similarly disadvantaged by incentives to degrade wine quality. ^ I demonstrate that nonconvexities in the demand-side of the domestic wholesale market for French wine prevented marginal incentives from leading independent farmers to a larger scale of vinification. Thus, the impetus for caves coppératives had to come from governmental promotion of modern production methods; but the source of the cooperatives\u27 longevity lies in their ability to accommodate the divergent minimum efficient scales of the production stages and in the value added by reducing variation in the fermented product. ^ To analyze the fitness of organizational forms in the California wine industry, I present a brief economic history that identifies the changes that have influenced organizational form over the last two hundred years. I argue evolution of organizational structures after the repeal of Prohibition represents a path-dependent response to changing consumer preferences. I go on to examine in some detail the winery\u27s decision to integrate into vineyard ownership, given the range of contractual alternatives available today. ^ Ultimately, I argue that different theories of economic organization apply best to different product innovation strategies. Further, these economic theories recommend unique combinations of ownership integration and coordination integration. I use case study information to test empirically the predicted relationship between innovation strategy and kind of integration.