Pour Decisions: The Microeconomics in Wine Purchasing

 It’s Friday afternoon and you find yourself at the trendy Ad Hoc wine shop in Manchester’s Northern Quarter. You are planning on hosting a dinner party and want to find a bottle of wine that will wow your guests leaving them thinking that you are quite the sommelier.

If you are a big wine enthusiast, you would probably appreciate luxury wines because you know how valuable it is. However, do you know how they are valued? Surprisingly, there are many more factors than just the taste to the quality of wine. Wines are generally valued using two aspects: intrinsic - taste and smell - and extrinsic attributes such as the type of wine, its reputation or the absence of fault in the production (Almenberg et al, 2008). Furthermore, the difficulty of producing certain quality characteristics of wine that are desired by people also has an impact on the relationship between price and quality of wine (Doucouliagos et al, 2014). These findings show that the delicacy in production of wine matters significantly when deciding the value of wine, which is directly reflected onto its price. Therefore, there is a strong tendency for people to associate high prices with high quality. 

But is this how everyone perceives the quality of wine? To find this out, an experiment was organised where a blind test was done on 140 participants with a randomised order of 3 types of wine. Curiously, many people thought that there was no difference in pleasantness as low-price wine was incorrectly presented as higher-priced wine, highlighting the subjectiveness in quality rating of non-experts. This stems from the fact that non-experts are less sensitive to some of the refinements within the production process (Birkhaeuer et al, 2021 & Almenberg et al, 2008).

The importance of market signalling is especially important for non-experts which means signalling by price can be a good way to attract consumers. However, a drawback of price acting as a market signal is that if there are too many consumers who are uninformed, price can no longer signal quality. This allows wine selling firms to reduce wine quality for “short run gains” (Mastrobuoni et al, 2014).

Now you face the next problem of your wine selection journey – how do you pick. Ad Hoc has over 500 bottles of wine and as much as you’d like to, trying a little bit of each is completely unfeasible. This leaves you, the buyer, left with only two pieces of information to gauge the quality of each bottle; the label and the price tag.

This makes wine selection complex, and you can often be at risk of ‘information asymmetry’. 'Asymmetric information’ means that you, the buyer, possess less information about the quality of the wine than the retailer or even the producer. As a result, the process of purchasing wine can lead to Akerlof’s lemon problem in which poor quality wine can flood the market as the buyer is unable to distinguish a good bottle (plums) from a bad bottle (lemon) just by looking at the label (Goolsbee et al, 2016).

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Instinctively, it's obvious which you would choose? Now, if you pour them out and my far cheaper wine surprisingly gives off a richer aroma, would your choice remain clear? The common consumer perspective that ‘expensive wine must be good’ vividly demonstrates the behavioural economics called anchoring bias--consumers tend to rely on the first piece of information we are given about a topic (Nikolopoulou, 2022). In the previous question, people will choose Romanee-Conti with its high ratings and big brand yet ignore the more attractive aromas from the normal wine.

According to Robert Parker (1978), for every one-point increase in a famous wine’s rating, its average price increases by around €63. Furthermore, wines scoring 90 points are roughly 33% more expensive than wines scoring 89, despite the minimal difference in taste. Ratings may seem to provide authoritative evidence, but they exacerbate confirmation bias. A well-known wine brand, Lafite, frequently loses to more unbranded wines in blind tasting tests (Yin, 2020). However, people still willingly accept the high price for celebrated brands, proving that brand reputation intensifies confirmation bias.

So next time you are looking for that special bottle, try to filter out the nice branding and enticing price tags and find a trusty wine shop, like Ad Hoc.

Reference list:

Almenberg, J., et al. (2008). Do More Expensive Wines Taste Better? Evidence from a Large Sample of Blind Tastings, Journal of Wine Economics, Volume 3, Number 1. Available at: https://wine-economics.org/wp-content/uploads/2012/10/Vol.3-No.1-2008-Evidence-from-a-Large-Sample-of-Blind-Tastings.pdf (Accessed: 2 April 2025)

Birkhaeuer, J., et al. (2021). Price information influences the subjective experience of wine: A framed field experiment, Food Quality and Preference, Volume 92. Available at: https://doi.org/10.1016/j.foodqual.2021.104223 (Accessed: 18 March 2025)

Chandra, R. and Moschini, G. (2022). Product differentiation and the relative importance of wine attributes: U.S. retail prices. Journal of Wine Economics, pp.1–32. doi:https://doi.org/10.1017/jwe.2022.23. (Accessed: 25 March 2025)

Cult Wines. (n.d.) 1945 DRC Romanee-Conti [Image]. Available at: https://cultwine.com/products/1945-drc-romanee-conti (Accessed: 27 March 2025).

Doucouliagos, H. (2014). Wine Prices and Quality Ratings: A Meta-regression Analysis, American Journal of Agricultural Economics, Volume 97, Issue 1. Available at: https://doi.org/10.1093/ajae/aau057 (Accessed: 19 March 2025)

Goolsbee, A. (2016) Microeconomics . Second edition. New York :, Worth Publishers Macmillan Education. Available at: https://read.kortext.com (Accessed: 18 March 2025)

Gutierrez, C. (2022). Council post: The importance of transparent marketing. Forbes. [online] 1 Dec. Available at: https://www.forbes.com/councils/forbesagencycouncil/2022/12/01/the-importance-of-transparent-marketing/. (Accessed: 18 March 2025)

Mastrobuoni, G., et al. (2014). Price as a Signal of Product Quality: Some Experimental Evidence, Journal of Wine Economics, Volume 9, Issue 2. Available at: https://doi.org/10.1017/jwe.2014.17 (Accessed: 18 March 2025)

‌Merel, P., Ortiz-Bobea, A. and Paroissien, E. (2019). How Big Is the ‘Lemons’ Problem? Historical Evidence From French Appellation Wines. SSRN Electronic Journal. doi:https://doi.org/10.2139/ssrn.3444625. (Accessed: 2 April 2025)

Parker, R. M. (1978). Parker’s Wine Buyer’s Guide. New York: Simon & Schuster.

Perfect Cellar (n.d.) The difference between fine wine and regular wine [Image]. Available at: https://www.perfectcellar.com/blogs/news/the-difference-between-fine-wine-and-regular-wine  (Accessed: 27 March 2025).

Scribbr. (2022). The anchoring bias. Available at: https://www.scribbr.co.uk/bias-in-research/the-anchoring-bias/   (Accessed: 27 March 2025)

Yin, Y. (2020). Blind Tasting. Available at: https://zhuanlan.zhihu.com/p/127189997 (Accessed: 30 March 2025).