Can Cooperatives Compete with Privately Owned Firms Regarding Product Quality and Reputation?
We address the question whether cooperatives can effectively compete with private wineries regarding product quality and reputation. Cooperative reputation for product quality depends on individual grower contributions subject to variation and on their management’s ability to produce and market high quality wine. Hence, cooperatives may face larger variations in grape quality with more uncertainty about wine quality further downstream. In contrast, private firms may have more control during the production cycle and may in turn gain a higher reputation with final consumers. We analyze a data set for Alto Adige wineries with retail prices and relevant evaluations for wine quality and producer reputation. It allows to differentiate local cooperatives and privately owned firms, IGT vs. DOC designations and a number of control variables. We employ a hedonic pricing model to test whether wine from private producers receive a reputation premium relative to cooperatively produced wines. Moreover, we hypothesize that wines from private wineries receive a price premium relative to cooperatively produced wine. Our results reject the hypothesis that private producers receive a reputation premium relative to cooperatives. On the contrary, our estimation reveals a significant and positive coefficient for cooperative reputation. We also confirm that cooperative wines receive a significant quality premium relative to non-coop wines. Moreover, comparing IGT and DOC denominations, our results indicate that the relative competitiveness between regional cooperatives and privately owned firms evolves towards a segmentation. Cooperatives get a collective reputation premium by focusing on DOC rules while their non-cooperative competitors use an IGT strategy emphasizing their brands.