An Empirical Analysis of Product Quality and Organizational Form
We study how cooperatives are able compete with private wineries regarding product quality and reputation. We analyze a data set with retail prices and relevant evaluations of wine quality and producer reputation for wines from Alto Adige and the Trentino regions in Northern Italy. The data set allows differentiating local cooperatives and private (non-cooperative) wineries as well as IGT and DOC quality denominations. We employ a hedonic pricing model to test whether wines from private producers receive a reputation premium relative to cooperatively produced wines. Moreover, we hypothesize that wines from private wineries receive a price premium for wine quality relative to cooperatives. In contrast to common beliefs, our results indicate that cooperatives are able to successfully produce improved grape qualities and enabling them to market higher wine qualities. For Alto Adige, we estimate a significantly positive reputation premium (+11 %) and a higher quality premium for wines produced by cooperatives. For the Trentino, we estimate a significant reputation discount (−6 %) and a higher quality premium for cooperatives.
We also examine if there is any competitive orientation towards specific quality denomination rules (DOC/IGT). We expect that cooperatives deeply rooted in a territory may focus on DOC rules while private wineries may want to differentiate specializing in IGT denominated wines. We test this hypothesis using interaction terms for quality denominations rules and organizational form (Coop/NonCoop). Our results show that in Alto Adige cooperatives compete successfully with their privately owned competitors as their DOC wines sell at a discount of about 11.3 %. However, Alto Adige private wineries do not receive a premium for IGT wines. In Trentino, private wineries receive a price premium for DOC wines (+4.5 %) and IGT wines (+13.3 %) relative to their cooperative competitors. The strategic use of denomination rules allows different organizational forms to capture premium prices in different market segments.
KeywordsOwnership Structure Price Premium Strategic Orientation Wine Quality Hedonic Model
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