Abstract

We specify a structural demand model for wine products given a score release field experiment to estimate the consumers’ willingness to pay (WTP) for expert opinion labels. We use monthly product level data before and after a retail field experiment in which we treat a random subset of wine products in one treated store and do not treat those same products in comparable control stores. We combine these scanner data with additional information on the characteristics of each product, such as, varietal, region of production, price point relative to other wines, to estimate a structural demand model for wine, defined as a bundle of attributes among which a score that is experimentally introduced into the market. Given the random coefficient structural wine demand estimates we find that wine products in our sample are overall elastic. We estimate that, on average, consumers’ WTP for a 83 scored bottle of wine is 2 dollars. Consumers also value California wines by one dollar more than non California wines in the sample, and the Chardonnay varietal has the highest WTP of 2.9 dollars a bottle, while the lowest estimated WTP is for the Merlot varietal. Welfare estimates from alternative attribute space choice sets are obtained via counterfactual simulations to estimate the changes in consumer surplus resulting from available quality information in the form of expert opinion scores, and we estimate there to be a significant welfare loss eliminating scores of 179 dollars which represents roughly one percent of total wine revenue in the treated store.

Keywords

Field experiment; Labels; information; expert opinion; wine; product attributes; structural random coefficients Logit demand; willingness-to-pay;

JEL codes

  • C12: Hypothesis Testing: General
  • C24: Truncated and Censored Models • Switching Regression Models
  • M30: General
  • Q18: Agricultural Policy • Food Policy
  • Q21: Demand and Supply • Prices
  • Q25: Water

Reference

Céline Bonnet, James Hilger, and Sofia B. Villas-Boas, WTP 4 WEO, February 28, 2017.

See also

Published in

February 28, 2017