An Empirical Analysis of Product Quality and Organizational Form
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We study how cooperatives are able compete with private wineries regarding product quality and reputation. We analyze a data set with retail prices and relevant evaluations of wine quality and producer reputation for wines from Alto Adige and the Trentino regions in Northern Italy. The data set allows differentiating local cooperatives and private (non-cooperative) wineries as well as IGT and DOC quality denominations. We employ a hedonic pricing model to test whether wines from private producers receive a reputation premium relative to cooperatively produced wines. Moreover, we hypothesize that wines from private wineries receive a price premium for wine quality relative to cooperatives. In contrast to common beliefs, our results indicate that cooperatives are able to successfully produce improved grape qualities and enabling them to market higher wine qualities. For Alto Adige, we estimate a significantly positive reputation premium (+11 %) and a higher quality premium for wines produced by cooperatives. For the Trentino, we estimate a significant reputation discount (-6%) and a higher quality premium for cooperatives.
Publication date: 07 October 2014