Regional reputation and expert opinion in the domestic market for New Zealand wine

Abstract

Wine is a highly differentiated experience good with limited availability of information about its true quality until the time of consumption. As a consequence, buyers must use proxies of a wine’s value to make the best possible purchase decisions. This paper uses hedonic price analysis to generate implicit prices for a sensory quality rating as well as regional reputation for three varieties of premium New Zealand wine. Results suggest that a favourable evaluation for a wine is associated with a significant price premium for the three wine varieties included in this analysis. The increasing magnitude of the quality-rating coefficient for pinot noir and chardonnay provides evidence that the quality price premium for these two varieties has been growing over time. Regional reputation appears to have the most influence among chardonnays, a result that is not surprising given the distinct regional variation associated with this variety in New Zealand. Interestingly, the quality-rating premium is smaller in magnitude and the regional reputation effects are less significant for sauvignon blanc. Our results are consistent with the hypothesis that ‘local knowledge’ may have much less influence over price for a variety that is predominately sold in the export market.