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The impact of individual and collective reputation on wine prices: empirical evidence from the Mosel valley

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Abstract

Although of considerable practical importance, the separate impact of individual and collective reputation on firm performance (e.g. product prices) has not yet been convincingly demonstrated. We use a sample of some 70 different wineries offering more than 1,300 different Riesling wines from the Mosel valley to isolate the returns to individual reputation (measured by expert ratings in a highly respected wine guide) from the returns to collective reputation (measured by membership in two different professional associations where members are assumed to monitor each other very closely). We find that both effects are statistically significant and economically relevant with the latter being more important in quantitative terms than the former.

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Notes

  1. Most of these papers refer to or are based on the concept of “implicit promises” as developed by Macaulay (1963).

  2. This is similar to the selection procedure in the US Major Leagues, where owners of incumbent franchises jointly decide on the location of new teams (see e.g. Quirk and Fort 1997, 1999).

  3. Currently there are about 2,700 different (usually rather small) firms producing wine in the Mosel, Saar and Ruwer valleys (Statistische Ämter des Bundes und der Länder 2011: 26). Although most of them are clustered in small villages with at most 1,000 or 2,000 inhabitants, individual producers neither have the technology nor any incentives to monitor other producers. The resulting free-rider problem can only be overcome if a small number of producers jointly invest in an institutional arrangement designed to avoid moral hazard behavior on the one hand and to promote their products on the other hand.

  4. Two years later, von Bruchhausen brought together similar associations that had developed in other German wine-growing regions. The new national organization was the forerunner of today’s “Verband Deutscher Prädikatsweingüter” (Association of German Quality Wine Estates, henceforth VDP).

  5. Eggert et al. (2010) use data from the annual auctions 1994–2008 to analyze the impact of the level and the change in individual producer’s reputation on wine prices.

  6. Anecdotal evidence suggests that being listed in this particular wine guide is considered the “key to success” by most winemakers.

  7. Thus, all the wines in the sample were harvested 2 years prior to the publication of the respective annual edition of the wine guide we use in our econometric analysis. Apart from these 1,303 Riesling wines the estates included in the sample also produced a small number of wines from other grapes (n = 25), indicating that winemakers in the Mosel, Saar and Ruwer valleys are highly specialized. Including these 25 wines in the estimations has no effect on the results (these are, of course, available from the authors upon request).

  8. Table 7 in the “Appendix” demonstrates that the distribution of wine qualities is similar across the three groups of wineries. Minor differences occur only in the middle of the quality distribution (Kabinett, Spätlese and Auslese), but neither at the bottom end (no label, Qualitätswein) nor at the top end (Beerenauslese, Eiswein and Trockenbeerenauslese) of the quality ranking. In each of the four harvest seasons included in the analysis (1992–1995) wines from all over the quality ranking are included in the analysis (a table displaying the distribution of the wines by harvest season and quality is available from the authors upon request).

  9. Estimation of an OLS model with standard errors clustered by winery yields somewhat smaller coefficients for the two membership dummies (see Table 8 in the “Appendix”). At the same time, however, the individual reputation dummies are—with one notable exception (the highest reputation category)—slightly larger in the OLS than in the Hausman-Taylor estimation. As an additional robustness check we also estimated a fixed effects model and then related these to the membership dummies. It appears that the coefficient of BR is negative and significant (−0.103, t = −5.67) while the coefficient of VDP is positive and significant (+0.297, t = 19.18). The full results are, of course, available from the authors upon request.

  10. Estimating the model with dummies for the different reputation categories results in a similar picture (see columns 5–7 of Table 3). As pointed out in Table 2 already, the coefficients exhibit a non-linear pattern, suggesting that there are considerable (additional) returns to “superstar winemakers”. Whether these returns are due to differences in talent (Rosen 1981) or due to differences in publicity (Adler 1985) remains to be tested.

  11. We plan, of course, to expand our data set to include the most recent editions of “Gault Millau”. This allows us to better explore membership effects as we observe not only “late entries” but also (in-) voluntary exits. We can then address the question whether product prices increase/decrease upon change in membership status while controlling for time-varying wine quality and expert evaluations.

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Acknowledgments

We would like to thank two anonymous referees for their constructive comments and suggestions. Moreover, we are grateful to conference participants at the Personnel Economics Workshop in Zurich (2011) and at the annual meeting of the American Association of Wine Economists in Davis, CA (2010) for their helpful suggestions. Finally, we thank Carolin Berges for her assistance in compiling the data set used in this study. Remaining errors and omissions are, of course, our own. This work was partially supported by the German Research Foundation (DFG) within the Collaborative Research Centre ``On-The-Fly Computing’’ (SFB 901).

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Authors and Affiliations

  1. Department of Management, University of Paderborn, Warburger Str. 100, 33098, Paderborn, Germany

    Bernd Frick

  2. Department of Economics, Lancaster University Management School, Lancaster, LA1 4YX, UK

    Robert Simmons

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  1. Bernd Frick
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  2. Robert Simmons
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Correspondence to Bernd Frick.

Appendix

Appendix

See Tables 5, 6, 7 and 8.

Table 5 Composition of the sample (wineries by membership, number of wines and year)
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Table 6 Wineries by number of years in sample
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Table 7 Wineries by type of wine quality
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Table 8 OLS estimation with Robust standard errors
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Frick, B., Simmons, R. The impact of individual and collective reputation on wine prices: empirical evidence from the Mosel valley. J Bus Econ 83, 101–119 (2013). https://doi.org/10.1007/s11573-013-0652-x

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