Consumer Characteristics, Identification, and Hedonic Valuation of Wine Attributes: Exploiting Data from a Field Experiment

Abstract

This paper uses a novel experimental approach to measure consumer willingness to pay for wine attributes in a hedonic framework. The research design allows us to deal with identification issues resulting from the interaction of demand and supply and to examine the effect of supply-side influences in price data. We employ information from observed wine choices and individual fixed effects to account for consumer heterogeneity and sorting. The effects of controlling for supply and addressing sorting and heterogeneity yield estimates of WTP for wine attributes markedly different than those found by past studies. The results demonstrate that consumer sorting is an important force in product markets and that consumer preferences for unobserved attributes drive valuation differences significantly. For instance, consumers in our sample display greater strength of preference over wine varieties than they do for appellations. It is therefore necessary to interpret results carefully when using valuation data that has been generated in controlled conditions.

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