Globalization, Superstars, and the Importance of Reputation: Theory and Evidence from the Wine Industry

Mike Gibbs; Mikel Tapia; Frederic Warzynski

Globalization, Superstars, and the Importance of Reputation: Theory and Evidence from the Wine Industry

Mike Gibbs, Mikel Tapia, Frederic Warzynski

GlobID -Globalization and Industry Dynamics

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Abstract

We develop a simple model of the effects of reputation on prices. An increasing fraction of consumers who are "naive" (less informed about quality) results in a stronger sensitivity of prices to ratings of quality. We then argue that this may be a factor in price dynamics for goods that become more widely traded as a result of globalization. We then provide some empirical analysis of these ideas using data on prices and Robert Parker's ratings of wines. Wine prices are strongly related to ratings, and even more so for higher quality wine categories. In addition, changes in Parker ratings for the same wine result in large price changes. Price elasticities with respect to ratings have risen dramatically since 1993. One plausible explanation for this is the growing globalization of the fine wine market, which increases the prevalence of naive wine consumers.

Original language	English
Journal	Journal of Wine Economics
Volume	4
Issue	1
Pages (from-to)	46-61
ISSN	1931-4361
Publication status	Published - 2009

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AB - We develop a simple model of the effects of reputation on prices. An increasing fraction of consumers who are "naive" (less informed about quality) results in a stronger sensitivity of prices to ratings of quality. We then argue that this may be a factor in price dynamics for goods that become more widely traded as a result of globalization. We then provide some empirical analysis of these ideas using data on prices and Robert Parker's ratings of wines. Wine prices are strongly related to ratings, and even more so for higher quality wine categories. In addition, changes in Parker ratings for the same wine result in large price changes. Price elasticities with respect to ratings have risen dramatically since 1993. One plausible explanation for this is the growing globalization of the fine wine market, which increases the prevalence of naive wine consumers.

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Globalization, Superstars, and the Importance of Reputation: Theory and Evidence from the Wine Industry

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