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

AAWE Working Paper No. 118 – Economics

 

The Detrimental Effect of Expert Opinion on Price-Quality
Dispersion Evidence from the Wine Market

Karl Storchmann, Alexander Mitterling and Aaron Lee

Abstract

In this paper we analyze the effect of expert opinion on the price-quality dispersion of experience goods by referring to a large sample of wines produced in the U.S. When controlling for the number of past critical reviews and for past quality scores attained on the producer level, the following results emerge from our analysis: Price-quality dispersion grows with the level of past critical exposure. Price- quality dispersion grows with the level of past maximum scores obtained. This is particularly pronounced if the difference between maximum and average points is high. Both effects mentioned above exert their largest spillover in the low- quality bracket resulting in significant overpricing of mediocre wines.

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