Wine and Economics
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Wine and Economics

Transacting the Elixir of Life

Denton Marks

What is distinctive about the economics of wine? Wine’s health benefits stir debate, but many appreciate life-enhancing qualities from its production and enjoyment. Few products enjoy such wide distribution, rich history, and interest. This book emphasizes microeconomic principles and related research – drawing upon various fields from international trade to public choice, relating economic reasoning to management. Topics range from economic fundamentals to the challenge of knowing what is in the bottle and the importance of wine as a cultural good.
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Chapter 7: A closer look at the transaction: how do we know what is in the bottle?

Denton Marks


A core idea in our understanding of the demand for wine is the consumer’s willingness to pay—but what determines one’s willingness to pay (WTP)? As we have learned, this question is distinct from what determines the price of a good because it focuses upon the demand side of a transaction, and price—what is offered in exchange for the good—reflects the impact of other influences such as supply and, in the case of wine, various forms of government intervention as well as taxation of alcoholic beverages. The economic theory of the consumer discussed in Chapter 4 recognizes a number of influences upon WTP: our focus in this chapter is the consumer’s taste for the good and, implicitly, for related goods. That is, the requirements for a rational determination of WTP would seem to involve knowledge of the product and knowledge of related products, cet. par. We begin this chapter with a discussion of the consumer’s problem in knowing a wine as a product and our attempts to capture consumer knowledge as a component of WTP. A primary focus is the interpretation of expert opinions about wines which are often used as a representation of consumer knowledge in empirical studies of the determinants of wine prices, following the assumption that wine is an “experience good”. This leads to the larger question of the consumer’s ability to know a wine which is distinct from her access to information about it.

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