Identifying the Effect of Unobserved Quality and Expert Reviews in the Pricing of Experience Goods: Empirical Application on Bordeaux Wine

We propose a structural empirical approach à la Levinsohn and Petrin (2003) to disentangle the effect of experts’ grades from the effect of unobserved quality on the pricing of experience goods. Using a panel data set of 108 châteaux selling wine on the Bordeaux ‘en primeur’ market, we provide some empirical validation for the theoretical result that the price set by wine producers is used as a signal for wine quality. We confirm that experts’ grades affect producers’ choice of ‘en primeur’ price above the effect of unobserved wine quality. Our empirical results also show that failing to control for endogeneity caused by the omission of unobserved leads to over-estimate the influence of experts’ grades on the ‘en primeur’ price.


Issue Date:
2007-11
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/37320
Page range:
1-34
Total Pages:
34
Series Statement:
AAWE Working Papers
10




 Record created 2017-04-01, last modified 2017-08-25

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