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Estimating Supply Functions for Wine Attributes: A Two-Stage Hedonic Approach
Published online by Cambridge University Press: 07 December 2021
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)
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- Copyright © The Author(s), 2021. Published by Cambridge University Press on behalf of American Association of Wine Economists
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.
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