Italian wines have been enjoyed by Canadian consumers for decades and the consumption is not limited to the ethnic Italian population. The study examines effects of wine characteristics and the brand associated with the designation of geographic origin estimating five hedonic price equations for Barbaresco; Barbera; Veneto (Valpolicella, Amarone and Reecioto); Soave; and, Chianti and uses weekly sales data from British Columbia retail outlets. Results indicate that, in general, a premium was paid for higher alcohol content, but the effects of individual brands within each area of origin varied and the range of price premia and discounts was from 14% to -12% suggesting that small price changes with regard to the baseline wine price could affect purchase.Hedonic pricing, appellation, objective characteristics, Demand and Price Analysis,

Carew, Richard

Florkowski, Wojciech J.

He, Senhui

English

Research Papers in Economics

 
 
 
 
 
 
 
British Columbia Consumers’ Preferences for Italian Wines: 
Reputation and Vintage Effects on Wine Quality and Prices 
 
 
 
 
W.J. Florkowski, R. Carew and Senhui He 
 
 
 
 
 
 
 
 
 
 
Paper prepared for presentation at the 12
th EAAE Congress 
 ‘People, Food and Environments: Global Trends and European Strategies’, 
Gent (Belgium), 26-29 August 2008 
 
  
 
 
 
 
 
 
 
 
 
Copyright 2008 by [W.J. Florkowski, R. Carew and Senhui He]  
.  All rights reserved.  Readers may make verbatim copies of this document for non-
commercial purposes by any means, provided that this copyright notice appears on all 
such copies. British Columbia Consumers’ Preferences for Italian Wines: Reputation and Vintage
Effects on Wine Quality and Prices
W. J. Florkowski 
1 , R. Carew 
2 and Senhui He 
1
1 University of Georgia, Agricultural and Applied Economics, Griffin Campus, Griffin, Georgia USA
2 Agriculture and Agri-Food Canada, Pacific Agri-Food Center, Summerland, British Columbia, Canada
Abstract – Italian wines have been enjoyed by Canadian
consumers for decades and the consumption is not limited to
the ethnic Italian population. The study examines effects of
wine characteristics and the brand associated with the
designation of geographic origin estimating five hedonic
price equations for Barbaresco; Barbera; Veneto
(Valpolicella, Amarone and Reecioto); Soave; and, Chianti
and uses weekly sales data from British Columbia retail
outlets. Results indicate that, in general, a premium was paid
for higher alcohol content, but the effects of individual
brands within each area of origin varied and the range of
price premia and discounts was from 14% to -12%
suggesting that small price changes with regard to the
baseline wine price could affect purchase.
Keywords – Hedonic pricing, appellation, objective
characteristics.
I.  INTRODUCTION
The purpose of this study is to measure how individual firm
wine reputation and the styles and terroir associated with their
wines including the vintage, region of production, and alcohol
content have influenced British Columbia consumers’
willingness to pay for Italian wines. The rapid expansion of
Italian wine shipments in the North American market has been
the focus of very few studies [1] measuring the contribution of
quality, reputation, origin of production, and objective
characteristics on wine prices.
There is evidence to indicate that wine quality perceptions
are based on a combination of intrinsic (e.g., grape variety,
alcohol content, and wine style) and extrinsic (e.g., packaging,
labeling, brand name) cues which can be altered without
affecting the product [2].  Wines vary in quality as illustrated by
ratings published in Italian wine guides [3]. According to [4],
the combination of non-verifiable quality attributes and the
subjectivity of the judgement of the experts results in a greater
increase in imperfect information which distorts  price-quality
relationship. Because of differences  in wine and labeling
regulations prevailing in  European and New World wine
countries, there has been an array of different indicators
considered to measure the quality and reputation effects on wine
prices. This paper uses data on Italian wines imported by the
British Columbia Liquor Distribution Branch, and comprises
primarily of red wines imported from the Northwestern
(Piedmont), Northeastern (Veneto), and Central (Tuscany) wine
growing regions of Italy.
II. CONCEPTUAL FRAMEWORK: HEDONIC
METHOD
The theoretical framework underpinning hedonic wine price
models is adapted from the research works of [5] and [6].
Hedonic wine price models are based on the pioneering work by
[7], where the observed price of a product is assumed to be
dependent on the value of its characteristics. Wine comprises a
bundle of characteristics with the implicit value of these
characteristics estimated by a hedonic price function. The latter
is an equilibrium price relationship that considers demand and
supply influences.  Hedonic studies reveal the implicit values of
wine quality characteristics consumers are willing to pay.
In this study, the vector of explanatory variables in the
empirical model includes measures of both appellation/ firm
reputation and label characteristics (e.g., alcohol, vintage) on the
bottle when the wine is purchased by the consumer. Estimating
a hedonic price function, therefore, provides information on the
extent consumers place value on reputation and label
characteristics.  Unlike some of the previous Italian wine studies
[1] that emphasized the sensorial and wine ratings of Barolo and
Barbaresco wines, this wine price sample comprised a large
range of appellation wines from distinct wine regions in Italy
and concentrated on both objective characteristics, individual-
owner reputation and regional reputation appellation wines.III. DATA DESCRIPTION AND WINE
APPELLATIONS
Italian wine sales data provided by the British Columbia
Liquor Distribution Branch covered weekly wine sales for table
wine in 0.750 litre bottles for 108 weeks over the period April
20, 2002 to May 8, 2004. In 2007, Italian grape wine imports
into British Columbia totaled $20.1 million, up 50.9% from
2004 [8]. Italian sales data covered prices, quantities, and wine
quality attributes for the major wine appellations exported by
Italy. The wine appellations (e.g., Chianti, Barbaresco, Barbera,
Valpolicella, and Soave)  in our study are representative of the
major wine brands exported by Italian wineries to Canada.  The
observable wine characteristics appearing on the wine label
include the appellation region, name of the company or village,
grape variety, color, vintage, and alcohol content.  Italian wine
classification distinguishes wine by quality based on several
categories. 
IV. ESTIMATION RESULTS
Five equations were estimated using the pooled OLS
approach for major wine producing regions: Barbaresco;
Barbera; Valpolicella, Amarone and Reecioto; Soave; and,
Chianti (Table 1). The goodness-of-fit measures included R-
squared ranging from .703 in case of equation representing
Chianti to .960 in case of equation representing Barbera. The
vast majority of coefficients were statistically significant
including all alcohol content measures, all but one variables
representing vintage, and all volume indicators. In this latter
case, the sign of the coefficient  suggested the inverse
relationship between the volume and price of particular group fo
wines suggesting that scarce supplies in the designated
production area led to price increases for Canadian consumers.
Among brand effects for Barbaresco, Barbaresco Ceretto Asij
and Pio Cesare Il Bricco fetched a premium, while Barbaresco
Fontanafredda and Barbaresco Riserva Produttori Del Barbarsco
sold at a discount. Among Barbera brands, only Barbera D’Alba
Sovrana Batasiolo sold at a premium from among the four
brands included in the specification. Results further showed that
all Amarone brands fetched a premium as did Valpolicella
Classico Superiore Masi, while other Valoplicella brands sold at
a discount. In contrast four Soave brands sold at a premium, but
effects were mixed among Chianti brands. Even the designation
“Chianti Classico” was often insufficient to fetch a premium, but
“Chianti Classico Riserva” always led to a premium. Except for
Chianti Barbi, other Chianti brands sold at a discount.
Table 1. Pooled OLS estimates for Italian wines.
Barbaresco Barbera
Variable
Coefficient
values Variable
Coefficient
values
Constant 3.946
(88.21)
Constant 2.991
(478.25)
Wine brands Wine brands
  Cereto Asij 0.152
(4.65)
D’Alba
Fontanafredda
-0.378
(-51.69)
Fontanafredda -0.459
(-8.35)
D’Alba Sovrana
Batasiolo
0.284
(37.56)
Pio Cesare Il
Bricco
0.532
(10.62)
D’Asti Bersano
Costalunga
-0.963
(-73.55)
Riserva Produttori
del Barbaresco
-1.173
(-18.98)
Del Monferrato
Bersano
-0.263
(-35.12)
Alcohol content Alcohol content
12.5% 0.882
(10.57)
13% 0.839
(65.07)
13% -0.269
(-4.14)
14% 1.265
(31.17)
13.5% 0.240
(4.07)
Quantity -0.0007
(-9.47)
Vintage R
2 0.96
1999 0.873
(16.63)
F[7,592] 2300.9
2000 -0.483
(-2.49)
Prob value 0.0000
1997-98 0.091
(1.64)
Quantity -0.001
(-1.63)
R
2 0.881
F[11, 428] 299.18
Prob value 0.0000Table 1. Pooled OLS estimates for Italian wines
(continued).
Valpolicella, Amarone, and
Recioto
Soave
Variable
Coefficient
values Variable
Coefficient
values
Constant 3.364
(201.62)
Constant 2.515
(202.32)
Wine brands Wine brands
Valpolicella
Bertani
Valpantena
-0.271
(-9.59)
Classico Bolla 0.362
(22.69)
Valpolicella
Classico Superiore
Masi
0.339
(9.45)
Classico
Superiore
Bertani
0.262
(14.91)
Valpolicella Jago
Le Poiane Bolla
-0.198
(-6.54)
Classico
Superiore
Masi
0.221
(17.19)
Valpolicella
Umberto Fiore
Tibalini
-0.748
(-27.36)
Suavia 0.804
(42.19)
Amarone della
Valpolicella
Classico Bertani
1.328
(45.23)
Quantity -0.0003
(-9.19)
Amarone Recioto
della Valpolicella
Montresor
0.475
(14.48)
R
2 0.868
Amarone della
Valpolicella
Negrar
0.057
(1.97)
F[, 438] 578.11
Amarone della
Valpolicella
Classico Masi
0.499
(18.24)
Prob value 0.0000
Amarone della
Valpolicella
Classico Bolla
0.469
(17.09)
Alcohol content
12.5% -0.223
(-6.81)
Vintage
1998 -0.989
(-29.86)
Quantity -0.0007
(-24.75)
R
2 0.862
F[12, 1440] 751.68
Prob value 0.0000
Table 1. Pooled OLS estimates for Italian wines
(continued).
Chianti
Variable Coefficient values
Constant 3.249
(310.10)
Chianti brands
Barbi 0.659
(12.14)
Cecchi -0.560
(-22.78)
Classico Barone Ricasoli -0.098
(-5.40)
Classico Castello D’Albola 0.064
(2.71)
Classico Riserva Antinori 0.140
(5.68)
Classico Riserva Ruffino Duclae 0.286
(11.58)
Classico Riserva San Felice Il Grigio 0.360
(15.28)
Classico Roca Delle Macie -0.967
(-30.96)
Fossi -0.419
(-17.79)
Gestioni Piccini -0.527
(22.38)
Melini -0.486
(-18.17)
Ruffino 0.010
(0.26)
Ruffina Riserva Frescobaldi Nipozz 0.014
(0.77)
Alcohol content
13% 0.926
(37.39)
13.5% 0.174
(4.10)Chianti
Variable Coefficient values
Vintage
1999 -0.922
(-24.07)
2000 -0.856
(-17.48)
2001-02 -0.518
(-16.15)
Quantity -0.006
(-12.51)
R
2 0.703
F[19, 2378] 300.45
Prob value 0.0000
V. CONCLUDING COMMENTS
Ethnic Italians may have given the initial boost to Italian wine
imports to Canada, but Italian wines are popular with many
consumers. Results show that the brand had a significant
influence on the price and that Canadian consumers paid a
premium for some, but discounted other brands. Higher alcohol
content typically led to a premium, but not in case of wines from
Veneto (Valpolicella, Amarone and Reecioto) and Barbaresco
wines with 13 percent alcohol. The premia and discounts ranged
from 14 percent for Amarone della Valpolicella Classico Bertani
to  -12 percent for Barbaresco Riserva Produttori Del
Barbaresco. Such a range is relatively narrow and suggests that
consumers could easily select from a wide selection of Italian
wines of different quality within each of five geographically
determined brands. To increase sales, the focus of the
competition shifts away from brands within the same designated
production area to the competition across Italy’s wine producing
regions. 
REFERENCES
1. Benfratello, L., M. Piacenza and S. Sacchetto (2004) Taste or reputation:
What drives market prices in the wine industry? Estimation of a hedonic
model for Italian premium wines. Paper presented at the 2
nd Annual
International Industrial Organization Conference (IIOC), Kellogg School of
Management, Northwestern University, Chicago, April 23-24. 
2. Lockshin, L. S. and W. T. Rhodus (1993) The effect of price and oak flavor
on perceived wine quality. International Journal of Wine Marketing 5(2): 13-
25.
3. Odorici, V. and R. Corrado (2004) Between supply and demand:
Intermediaries, social networks and the construction of quality in the Italian
wine industry. Journal of Management and Governance 8:149-171.
4. Coppola, A., V. Sodano and F. Verneau (2005) Explaining price dispersion
in the Campania market for wine.
[Http://www.vdqs.fed_eco.com/documents/cahier4/coppola.pdf].  Accessed
October 25, 2005.
5. Combris, P., S. Lecocq and M. Visser (1997) Estimation of a hedonic price
equation for Bordeaux wine: Does quality matter?. The Economic Journal
107 (March):390-402.
6. Landon, S. and C.E. Smith (1998) Quality expectations, reputation, and
price. Southern Economic Journal 64(3):628-647.
7. Rosen, S.M. (1974) Hedonic prices and implicit markets: product
differentiation in pure competition. Journal of Political Economy 82:34-55.
8. Industry Canada (2008) Trade Data Online.
[Http://www.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.php]. Accessed March 17
th, 2008.
Contact author:
W. J. Florkowski
Agricultural and Applied Economics
University of Georgia, Griffin Campus
1109 Experiment Street
Griffin, GA 30223-1797  USA
wojciech@uga.edu

Between supply and demand: Intermediaries, social networks and the construction of quality in the Italian wine industry.

Estimation of a hedonic price equation for Bordeaux wine: Does quality matter?.

Explaining price dispersion in the Campania market for wine.

Hedonic prices and implicit markets: product differentiation in pure competition.

Quality expectations, reputation, and price.

Taste or reputation: What drives market prices in the wine industry? Estimation of a hedonic model for Italian premium wines.

The effect of price and oak flavor on perceived wine quality.

Trade Data Online.

British Columbia Consumers' Preferences for Italian Wines: Reputation and Vintage Effects on Wine Quality and Prices

British Columbia Consumers' Preferences for Italian Wines: Reputation and Vintage Effects on Wine Quality and Prices

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics