The price of wine grew at a fast rate between 2001 and 2010 and has since been stagnating. The period of growth may be explained by the rise in the demand from emerging markets and from richest people (the top 1% and 10%), while the stagnation may come from the entry of new varieties causing a crowding/competition effect on the market. We estimate the generalized model of ideal variety proposed by Hummels and Lugovskyy (2009) that combines these two elements and find support for this explanation. A 1% increases in GDP per-capita (income effect) generated an increase in price of 1.13% between 2001 and 2011. In contrast, a 1% increase in market size (competition effect) reduced price by 1.10% over the same period. This paper also analyses these effects by considering exports of wine according to mode of transport and indirectly evaluates economies of scale in transport of wine exported by plane, boat and road.
This article was written by Karl Storchmann