What Determines the Future Value of an Icon Wine? Evidence from Australia

Danielle Wood () and Kym Anderson

No 2002-33, Centre for International Economic Studies Working Papers from University of Adelaide, Centre for International Economic Studies

Abstract: The Australian wine auction market is characterised by large variations in price between different vintages of the same wine. Yet the release prices of those wines exhibit considerably less volatility. This paper addresses the question: to what extent can we anticipate the future price of such icon wines from information available at the time of release? Specifically, it looks at the importance of the weather conditions during the grape-growing season. A hedonic model is estimated to explain the variation in price between different vintages using several weather variables plus dummy variables for capturing changes in winemaking and grape growing techniques. The model is estimated using auction price data for four South Australian icon red wines: three by Penfolds (Grange, St Henri and Bin 707), and one by HenschkeÂ’s (Hill of Grace). We show that weather variables and changes in production techniques, along with the age of the wine, have significant power in explaining the secondary market price variation across different vintages of each wine. The results have implications for winemakers in determining the prices they pay for grapes and charge for their wines, and for consumers/wine investors as a guide to the quality of immature icon wines.

Keywords: Wine quality; Investment under uncertainty; Hedonic pricing model (search for similar items in EconPapers)
JEL-codes: C23 D12 D44 D80 G12 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2002-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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