assess regional denominations, the
Winestate
sample
allows us to distinguish 28 different regions for Australia
and six different regions for New Zealand.
(ii) The Model
Following conventional hedonic models, we propose
that a bundle of quality attributes defines any
premium wine. Consumer willingness to pay is
a function of that bundle of wine quality attributes.
In addition to wine experts’ sensory quality ratings
of a particular wine, of each vintage and of the winery
producing it (such ratings books are commonly
available for perusal in wine shops), willingness to
pay for a wine also reflects consumers’ perception
of the varietal reputation and the reputation of the
producing region. An individual quality indicator
such as a classic wine rating assigned by wine critics
may also affect buying decisions.
Hedonic price analysis relates the price of a good
to its utility-generating characteristics, and generates
implicit prices for these characteristics. Thus, any
quantitative or qualitative variable that affects consumer
utility may be included in a hedonic price
function. We formulate a model assuming that consumers,
uncertain about the true sensory quality
of a particular wine, adjust their willingness to pay
using expert ratings of wine quality (vintage ratings)
and of the wine producer as well as their own perception
of varietal and regional reputations.
5
The theoretical model described above limits the
type of explanatory variables, but it does not restrict
the functional form to be estimated. In the empirical
literature on hedonic wine pricing, a variety of
different functional forms have been explored and