An Econometric Model for Identifying Value in South African Red Wine

Abstract

This article develops an econometric valuation methodology that is applied to identifying value in South African red wines. It is found that quality, as simultaneously measured by Wine magazine and Platter star ratings, is the dominant factor in explaining the cross‐section of prices. However, together with a varietal dummy these factors are only able to explain about 40% of the variation in wine prices. This implies that there is considerable value that may be gleaned through informed bargain seeking using this tool. Indeed, at certain levels of value there is more than a 50% differential in price.

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