Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Friday, October 18, 2019

Experts, Reputation and Umbrella Effects: Empirical Evidence from Wine Prices

By: Dieter PennerstorferChristoph WeissAndreas Huber
Abstract: We investigate the relationship between external quality evaluation via experts, firm reputation and product prices and extend the existing empirical literature in three dimensions. First, we empirically account for endogenous reputation effects. An increase in quality has an immediate positive impact on product prices but also improves the reputation of a firm, which contributes to higher prices in the future. Secondly, we analyse umbrella effects of reputation: investments in product quality of the ’top product‘ are particularly profitable as they also generate a ’ reputational dividend‘ for other products with lower quality. And finally, we investigate selection effects in expert evaluations. Experts typically evaluate a selection of products only and we find endogenous selection effects to be important for analysing product quality empirically.

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