represents a bundle of characteristics that define
quality. Their theoretical foundation is provided in
the seminal paper by Rosen (1974), which posits
that goods are valued for their utility-generating
attributes. Rosen suggests there are competitive
implicit markets that define implicit prices for
embodied product attributes, and that consumers
evaluate product attributes when making a purchasing
decision. The observed market price is the sum of
implicit prices paid for each quality attribute.
Since the quality of a particular bottle of wine
cannot be known until it is de-corked and consumed,
consumers’ willingness to pay depends on reputations
associated with that wine. In addition to quality
ratings, consumers’ perceptions of a wine’s quality
depends on producer reputation, the collective reputation
of the wine region of production, and the grape
variety (or varieties) used. Shapiro (1983) presents
a theoretical framework to examine the effects of
individual producer reputation on prices. He develops
an equilibrium price–quality schedule for high-quality
products, assuming competitive markets and
imperfect consumer information, to demonstrate
that reputation allows high-quality producers to sell
their items at a premium that may be interpreted as
a return from producer investments in building reputation.
On the demand side of the market, too, it is
costly for consumers to improve their information
about product quality. In such an environment of
imperfect information, learning about the reputation
of a product or of some of its attributes can be an effective
way for consumers to become better informed.
A favourable producer or winery rating assigned by a
wine expert, for example, may serve as a way to reduce
consumers’ decision-making costs.