Academic journal article Journal of Agricultural and Resource Economics

Impacts of Expert Information on Prices for an Experience Good across Product Segments: Tasting Notes and Wine Prices

Academic journal article Journal of Agricultural and Resource Economics

Impacts of Expert Information on Prices for an Experience Good across Product Segments: Tasting Notes and Wine Prices

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

Understanding the process of price formation is difficult in the case of experience goods, which do not allow consumers to observe their quality prior to consumption. Hence, many consumers rely on information from expert evaluations when making purchasing choices. The use of expert information should depend on the benefits from product knowledge versus expending time acquiring and processing information. Since consumers have heterogeneous preferences for quality and face different costs of acquiring and processing information, expert information will not impact all shoppers but may be useful to specific market segments. One would expect that consumers who are paying high prices for quality will acquire more information. The objective of this article is to examine how expert information impacts prices across product segments. We accomplish this objective using the case of the wine market by measuring the impact of tasting notes on wine prices across price categories.

In the case of wine, expert opinions generally come in two forms: expert blind rating scores and tasting notes. Rating scores are numerical summary information and are low-cost for the consumer to process. In contrast, tasting notes are qualitative (Storchmann, 2012) and more costly for the consumer to obtain and process. The impact of information format has been studied in nutrition information. Berning, Chouinard, and McCluskey (2008) examine how detailed information compares with summary information in its impact on choice. Different consumers prefer different formats based on their costs of information processing and the consequences of the information.

Since wine quality cannot be assessed until after consumption, there is an element of risk in purchasing a bottle of wine. Costanigro, McCluskey, and Mittelhammer (2007) argue that for an experience good, such as wine, the magnitude of risk increases with price and decreases with information. For inexpensive wines, the risk is limited by the relatively low price. For more expensive wines, consumers have an incentive to invest more time on research prior to purchase. High-end wine consumers are more likely to read wine reviews and tasting notes. Thus, we expect tasting notes to have a greater impact on the price of high-end wines than on lower-end wines.

Consumers can reduce the risk of choosing nonpreferred wines by using experts' sensory descriptors to guide their purchase decisions. Lehrer (1975), Lawless (1984), and Weil (2007) conclude that the majority of people rely on experts when choosing wines. Charters and AliKnight (2000) find that consumers consider simple taste and smell descriptors to be important label information for wine choice. Tuorila et al. (1998) find that ratings of unfamiliar foods are enhanced when the products are described using positive information. These studies support the argument that overall sales are enhanced by descriptors (Thomas et al., 2014).

Many researchers make the case that expert wine ratings are suspect as objective measures of wine quality for many reasons, including that most wine product characteristics are "horizontal" rather than "vertical" quality attributes. This means not all consumers will agree on what constitutes quality. For example, some consumers prefer sweeter wines and some prefer drier wines. Expert ratings are based on experts' preferences. For example, highly influential wine critic Robert Parker has "a preference for powerfully concentrated fruity wines... [resulting in] some producers around the world feel[ing] compelled to customize their wines for his palate" (Asimov, 2006, p. 1). For expert wine ratings to be an objective measure of quality, consumers' wine preferences would need, on average, to be consistent with those of the experts creating the ratings.

There are sensory and psychological reasons to question the validity of expert wine ratings as objective quality measures. …

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