AAWE, Economics Dept, New York University, 19 W 4th St, 6Fl., New York NY 10012aawe@wine-economics.org

AAWE Working Paper No. 114 – Economics

 

Quality Classifications in Competition:
Price Formation in the German Wine Market

Jörg Rössel and Jens Beckert

Abstract

How do judgment devices influence price formation? We investigate this question through a study of the German wine market. The German wine market is characterized by the simultaneous existence of two classification systems: the official classification system referring to the “quality in the glass,” and the concept of “terroir,” introduced by a private association of quality winemakers, the Verband deutscher Prädikatsweingü- ter. We used a data set comprising 1,890 wines from 248 different wineries in the German wine-growing regions of Rheingau and Rheinhessen. Our results show that the two classification systems function as mutually exclusive strategic options for wine- makers. We also show that the non-official classification of terroir is much more power- ful in explaining price formation within the market.

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