AAWE Working Paper No. 102 – Economics

We develop a model to examine the relationship between initial wine prices, regional reputation and bottle quality, as well as the potential impact of a word-of-mouth effect, particularly via online social wine networks on price discounts. Regression estimation results based on this model provide empirical evidence to support the existence of a premium attached to bottle quality and regional reputation in setting initial prices. Moreover, we find a significant positive effect of regional reputation on discount rates, which indicates the existence of a word-of-mouth effect and its eroding effect on the regional reputation premium.