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The Law of One Price? Price Dispersion on the Auction Market for Fine Wine*

Published online by Cambridge University Press:  19 December 2017

Jean-Marie Cardebat ,
Benoît Faye ,
Eric Le Fur  and
Karl Storchmann
Jean-Marie Cardebat
Affiliation:
LAREFI and Bordeaux Wine Economics, Economics Department, Bordeaux University, Avenue Léon Duguit 33608 Pessac, France; e-mail: jean-marie.cardebat@u-bordeaux.fr.
Benoît Faye
Affiliation:
INSEEC Business School, Hangar 19 Quai de Paludate, CS 60083, 33070 Bordeaux Cedex, France, and Bordeaux Wine Economics; e-mail: bfaye@inseec.com.
Eric Le Fur*
Affiliation:
INSEEC Business School, Hangar 19 Quai de Paludate, CS 60083, 33070 Bordeaux Cedex, France, and Bordeaux Wine Economics
Karl Storchmann
Affiliation:
Economics Department, New York University, 19 West 4th Street, New York, NY 10012, USA, and INSEEC Business School, Hangar 19 Quai de Paludate, CS 60083, 33070 Bordeaux Cedex, France; e-mail: karl.storchmann@nyu.edu.
*
e-mail: elefur@inseec.com (corresponding author)
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Abstract

This paper examines the strong version of the law of one price (LOOP) on the auction market for fine wine. We draw on worldwide auction prices from eight auction houses,1 covering the time period from 2000 to 2012. Employing a hedonic approach, we find significant price premiums in particular in Hong Kong and between auction companies (independent of their locations). The price premiums by far exceed the expected transaction costs, casting doubt on the existence of the strong version of LOOP in the fine wine market. Our results suggest that heterogeneity in buyer preferences may crucially contribute to the observed price dispersion. In particular, although wines suspected of being counterfeits are sold at discounts in Western markets, they fetch price premiums in Hong Kong. (JEL Classifications: Q14, G11)

Keywords

asset pricingauctionlaw of one priceprice dispersionwine
Type
Articles
Information
Journal of Wine Economics , Volume 12 , Issue 3 , August 2017 , pp. 302 - 331
Copyright
Copyright © American Association of Wine Economists 2017 

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Footnotes

*

We are grateful to an anonymous reviewer for many helpful comments and suggestions.

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