Hostname: page-component-848d4c4894-v5vhk Total loading time: 0 Render date: 2024-06-16T22:58:40.217Z Has data issue: false hasContentIssue false
  • English
  • Français

Estimating Supply Functions for Wine Attributes: A Two-Stage Hedonic Approach

Published online by Cambridge University Press:  07 December 2021

Edward Oczkowski
Edward Oczkowski*
Affiliation:
National Wine and Grape Industry Centre and School of Accounting and Finance, Charles Sturt University, PO Box 588, Wagga Wagga, NSW 2678, Australia; e-mail: eoczkowski@csu.edu.au.
Get access Rights & Permissions [Opens in a new window]

Abstract

A vast body of literature exists on estimating hedonic price functions, which relate the price of wine to its attributes. Some existing literature has employed producer-specific variables such as quantity sold and producer reputation in hedonic functions to potentially capture supply influences on prices. This practice is inconsistent with the original Rosen (1974) hedonic theoretic foundation. To overcome this deficiency, we extend the literature by using the Rosen two-stage approach, employing data from multi-markets for similar wines to estimate inverse supply functions. The application to Australian produced wines sold in different countries demonstrates the importance of a wine's quality and age as attributes in inverse supply functions. Results imply the additional costs of producing better quality and older wines are increased as both quality and age are increased. Estimates also suggest that lower marginal costs for attributes are associated with a smaller producer size and older more established producers. (JEL Classifications: C21, Q11)

Keywords

attribute supplyAustralian wineswine prices
Type
Articles
Information
Journal of Wine Economics , Volume 17 , Issue 1 , February 2022 , pp. 1 - 26
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press on behalf of American Association of Wine Economists

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

Comments from two anonymous reviewers and the participants at a seminar presentation to the European Association of Wine Economists and especially Professor Günter Schamel and Professor Jean-Marie Cardebat, are gratefully acknowledged.

References

Australian and New Zealand Wine Industry Directory (ANZWID) (2019). Adelaide: Winetitles.Google Scholar
Australian Competition and Consumer Commission (ACCC) (2019). Wine Grape Market Study: Final Report. Canberra: ACCC.Google Scholar
Banzhaf, H. S. (2021). Difference-in-differences hedonics. Journal of Political Economy, 129(8), 2385–2414.CrossRefGoogle Scholar
Bartik, T. J. (1987). The estimation of demand parameters in hedonic price models. Journal of Political Economy, 95(1), 81–88.CrossRefGoogle Scholar
Baudry, M., and Maslianskaia-Pautrel, M. (2016). Revisiting the hedonic price method in the presence of market segmentation. Environmental Economic and Policy Studies, 18, 527–555.CrossRefGoogle Scholar
Brown, J. N., and Rosen, H. S. (1982). On the estimation of structural hedonic price models. Econometrica, 50(3), 765–768.CrossRefGoogle Scholar
Cameron, A. C., and Trivedi, P. K. (2005). Microeconometrics: Methods and Applications. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Caracciolo, F., and Furno, M. (2020). Hedonic functions, heterogeneous consumers, and wine market segmentation. Journal of Agricultural and Resource Economics, 45(2), 299–316.Google Scholar
Cardebat, J-M., Faye, B., Le Fur, E., and Storchmann, K. (2017). The law of one price? Price dispersion on the auction market for fine wine. Journal of Wine Economics, 12(3), 302–331.CrossRefGoogle Scholar
Costanigro, M., McCluskey, J. J., and Goemans, C. (2010). The economics of nested names: Name specificity, reputations and price premia. American Journal of Agricultural Economics, 92(5), 1339–1350.CrossRefGoogle Scholar
Coulson, N. E., Dong, Z., and Sing, T. F. (2021). Estimating supply functions for residential real estate attributes. Real Estate Economics, 49(2), 397–432.CrossRefGoogle Scholar
Cropper, M. L., Deck, L. B., and McConnell, K. E. (1988). On the choice of functional form for hedonic price functions. Review of Economics and Statistics, 70(4), 668–675.CrossRefGoogle Scholar
Ekeland, I., Heckman, J. J., and Nesheim, L. (2002). Identifying hedonic models. American Economic Review, 92(2), 304–309.CrossRefGoogle Scholar
Epple, D. (1987). Hedonic prices and implicit markets: Estimating demand and supply functions for differentiated products. Journal of Political Economy, 95(1), 59–80.CrossRefGoogle Scholar
Fogarty, J. J., and Jakeman, G. (2011). Wine tax reform: The impact of introducing a volumetric excise tax for wine. Australian Economic Review, 44(4), 387–403.CrossRefGoogle Scholar
Godfrey, L. G., McAleer, M., and McKenzie, C. R. (1988). Variable addition and Lagrange multiplier tests for linear and logarithmic regression models. Review of Economics and Statistics, 70(3), 492–503.CrossRefGoogle Scholar
Greenstone, M. (2017). The continuing impact of Sherwin Rosen's “Hedonic prices and implicit markets: Product differentiation in pure competition.” Journal of Political Economy, 125(6), 1891–1902.CrossRefGoogle Scholar
Hall, A., and Jones, G. V. (2010). Spatial analysis of climate in winegrape-growing regions in Australia. Australian Journal of Grape and Wine Research, 16(3), 389–404.CrossRefGoogle Scholar
IBISWorld (2020). Wine Production in Australia. IBISWorld Industry Report C1214, April.Google Scholar
International Organisation of Vine and Wine Intergovernmental Organisation (OIV) (2019). Statistical Report on World Vitivinculture. Paris: OIV.Google Scholar
Jun, M-J. (2019). Quantifying welfare loss due to longer commute times in Seoul: A two-stage hedonic price approach. Cities, 84, 75–82.CrossRefGoogle Scholar
Kennedy, P. E. (1986). Interpreting dummy variables. Review of Economics and Statistics, 68(1), 174–175.CrossRefGoogle Scholar
Kinzy, S. A. (1982). An analysis of the supply of housing characteristics by builders within the Rosen framework. Journal of Urban Economics, 32(1), 1–16.CrossRefGoogle Scholar
Mei, Y., Hite, D., and Sohngen, B. (2017). Demand for urban tree cover: A two-stage hedonic price analysis in California. Forest Policy and Economics, 83(C), 29–35.CrossRefGoogle Scholar
Nerlove, M. (1995). Hedonic price functions and the measurement of preferences: The case of Swedish wine consumers. European Economic Review, 39, 1697–1716.CrossRefGoogle Scholar
Netusil, N. R., Chattopadhyay, S., and Kovacs, K. F. (2010). Estimating the demand for tree canopy: A second-stage hedonic price analysis in Portland, Oregon. Land Economics, 86(2), 281–293.CrossRefGoogle Scholar
Oczkowski, E. (1994). A hedonic price function for Australian premium table wine. Australian Journal of Agricultural Economics, 38(1), 93–110.CrossRefGoogle Scholar
Oczkowski, E. (2001). Hedonic wine price functions and measurement error. Economic Record, 77(239), 374–382.CrossRefGoogle Scholar
Oczkowski, E. (2016a). Analysing firm level price effects for differentiated products: The case of Australian wine producers. Australian Economic Papers, 55(1), 43–62.CrossRefGoogle Scholar
Oczkowski, E. (2016b). Hedonic wine price functions with different prices. Australian Journal of Agricultural and Resource Economics, 60, 196–211.CrossRefGoogle Scholar
Oczkowski, E. (2016c). The effect of weather on wine quality and prices: An Australian spatial analysis. Journal of Wine Economics, 11(1), 48–65.CrossRefGoogle Scholar
Oczkowski, E., and Doucouliagos, H. (2015). Wine prices and quality ratings: A meta-regression analysis. American Journal of Agricultural Economics, 97(1), 103–121.CrossRefGoogle Scholar
Oczkowski, E., and Pawsey, N. (2019). Community and expert wine ratings and prices. Economic Papers, 38(1), 27–40.Google Scholar
Outreville, J-F., and Le Fur, E. (2020). Hedonic price functions and wine price determinants: A review of empirical research. Journal of Agricultural and Food Industrial Organization. 18(2), 1–27.CrossRefGoogle Scholar
Palmquist, R. B. (1984). Estimating the demand for the characteristics of housing. Review of Economics and Statistics, 66(3), 394–404.CrossRefGoogle Scholar
Palmquist, R. B. (1989). Land as a differentiated factor of production: A hedonic model and its implications for welfare measurement. Land Economics, 65(1), 23–28.CrossRefGoogle Scholar
Palmquist, R. B. (2005). Property value models. In Maler, K-G. and Vincent, J. R. (eds.), Handbook of Natural Resource and Energy Economics, vol. 2., 763–820. Amsterdam, The Netherlands: Elsevier.Google Scholar
Pardew, J. B., Shane, R. L., and Yanagida, J. F. (1986). Structural hedonic prices of land parcels in transition from agriculture in a western community. Western Journal of Agricultural Economics, 11(1), 50–57.Google Scholar
Quigley, J. M. (1982). Nonlinear budget constraints and consumer demand: An application to public programs for residential housing. Journal of Urban Economics, 12(2), 177–201.CrossRefGoogle Scholar
Rasmussen, D. W., and Zuehlke, T. W. (1990). On the choice of functional form for hedonic price functions. Applied Economics, 22(4), 431–438.CrossRefGoogle Scholar
Roma, P., Di Martino, G., and Perrone, G. (2013). What to show on the wine labels: A hedonic analysis of price drivers of Sicilian wines. Applied Economics, 45(19), 2765–2778.CrossRefGoogle Scholar
Rosen, S. (1974). Hedonic prices and implicit markets: Product differentiation in pure competition. Journal of Political Economy, 82(1), 34–55.CrossRefGoogle Scholar
Schamel, G., and Anderson, K. (2003). Wine quality and varietal, regional and winery reputations: Hedonic prices for Australia and New Zealand. Economic Record, 79(246), 357–369.CrossRefGoogle Scholar
Shaw, D., Huang, J-C., Lin, C-Y., Hsu, T-Y., and Tsai, M. (2021). Estimating demand for good climate and air quality in Taiwan. Climate Change Economics, 12(1), 1–24.CrossRefGoogle Scholar
Taylor, L. O. (2017). Hedonics. In Champ, P. A., Boyle, K. J., and Brown, T. E. (eds.), A Primer on Nonmarket Valuation. The Economics of Non-Market Goods and Resources, vol. 13, 235–292. Dordrecht: Springer.CrossRefGoogle Scholar
Thomas, J. M. (1993). The implicit market for quality: An hedonic analysis. Southern Economic Journal, 59(4), 648–674.CrossRefGoogle Scholar
Australia, Wine (2019a). Media Release: Export Report. December 2019. Available at https://www.wineaustralia.com/news/media-releases/export-report-december-2019.Google Scholar
Australia, Wine (2019b). Australian Grape and Wine Sector: Strategic Planning Discussion Paper. Adelaide: Wine Australia.Google Scholar
Witte, A. D., Sumka, H. J., and Erekson, H. (1979). An estimate of a structural hedonic price model of the housing market: An application of Rosen's theory of implicit markets. Econometrica, 47(5), 1151–1173.CrossRefGoogle Scholar
Zabel, J. E., and Kiel, K. A. (2000). Estimating the demand for air quality in four U.S. cities. Land Economics, 76(2), 174–194.CrossRefGoogle Scholar