Estimating Hedonic Prices for Stellenbosch wine

Sanja Lutzeyer

No 15/2008, Working Papers from Stellenbosch University, Department of Economics

Abstract: This paper estimates a hedonic price function for Stellenbosch wines to determine the association between market value and different characteristics of these wines. In such a hedonic price function, the price of a bottle of wine is ascribed to the implicit value of its attributes. Besides contributing to both South African and international wine pricing literature, the benefits of developing a hedonic wine pricing model extend to numerous players in the wine industry. Consumers are provided with guidelines on how to utilize their wine purchasing budget more efficiently, while producers are able to use estimates of the function to guide future investment decisions. The hedonic price function estimated in this paper includes numerous ‘objective’ characteristics, appearing on the label of the bottle, as well as subjective characteristics in the form of expert wine ratings. In an effort to address possible heterogeneity of wine as a product, separate regressions are run for red and white wines. The estimation of the hedonic price equation shows that, in general, wine quality (as modelled by blind and sighted wine ratings) and age of the wine are relevant in accounting for price deviations from average red wine prices. Further, it is found that only limited numbers of red wine varieties and sub-districts of production significantly influence the average price of Stellenbosch red wines. For white wines, only sighted wine ratings as well as age of the wine were found to significantly account for deviations from average white wine prices. While blind wine ratings and white wine varieties were not found to significantly influence average white wine prices, certain regions of production where found to be relevant in accounting for deviations from average white wine prices.

Keywords: Hedonic pricing; Wine; Stellenbosch; South Africa (search for similar items in EconPapers)
JEL-codes: C13 C21 Q11 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-afr, nep-agr and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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