111 research outputs found
Identifying the Effect of Unobserved Quality and Expert Reviews in the Pricing of Experience Goods: Empirical Application on Bordeaux Wine
We propose a structural empirical approach Ă la Levinsohn and Petrin (2003) to disentangle the effect of expertsâ grades from the effect of unobserved quality on the pricing of experience goods. Using a panel data set of 108 chĂąteaux selling wine on the Bordeaux âen primeurâ market, we provide some empirical validation for the theoretical result that the price set by wine producers is used as a signal for wine quality. We confirm that expertsâ grades affect producersâ choice of âen primeurâ price above the effect of unobserved wine quality. Our empirical results also show that failing to control for endogeneity caused by the omission of unobserved leads to over-estimate the influence of expertsâ grades on the âen primeurâ price.quality signaling, wine price, wine market, expert ratings, Demand and Price Analysis, Industrial Organization,
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