What Determines the Future Value of an Icon Wine? New Evidence from Australia
Date
2002-11
Authors
Wood, Danielle
Anderson, Kym
Journal Title
Journal ISSN
Volume Title
Publisher
Centre for International Economic Studies, University of Adelaide
Abstract
The Australian wine auction market is characterised by large variations in price
between different vintages of the same wine. Yet the release prices of those wines
exhibit considerably less volatility. This paper addresses the question: to what
extent can we anticipate the future price of such icon wines from information
available at the time of release? Specifically, it looks at the importance of the
weather conditions during the grape-growing season. A hedonic model is
estimated to explain the variation in price between different vintages using several
weather variables plus dummy variables for capturing changes in winemaking and
grape growing techniques. The model is estimated using auction price data for
four South Australian icon red wines: three by Penfolds (Grange, St Henri and Bin
707), and one by Henschke’s (Hill of Grace). We show that weather variables and
changes in production techniques, along with the age of the wine, have significant
power in explaining the secondary market price variation across different vintages
of each wine. The results have implications for winemakers in determining the
prices they pay for grapes and charge for their wines, and for consumers/wine
investors as a guide to the quality of immature icon wines.
Description
Keywords
wine quality, investment under uncertainty, hedonic pricing model
Citation
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Source
Centre for International Economic Studies, Discussion Paper No. 0233
Type
Working/Technical Paper
Book Title
Entity type
Access Statement
Open Access
License Rights
DOI
Restricted until
2037-12-31