Quality Classifications in Competition: Price Formation in the German Wine Market

How do judgment devices influence price formation? The authors’ study of the German wine market sheds light on this question. The German wine market is characterized by the simultaneous existence of two classification systems: the official classification system referring to the “quality in the glass,” and the concept of “terroir” introduced by a private association of quality winemakers, the Verband deutscher Prädikatsweingüter. Having analyzed a data set comprising 1,890 wines from 248 different wineries in the German wine-growing regions of Rheingau and Rheinhessen, the authors show that the two classification systems function as mutually exclusive strategic options for winemakers. They also show that the nonofficial classification of terroir is much more powerful in explaining price formation within the market