Wine Futures and Advance Selling Under Quality Uncertainty

摘要

This study examines the use of wine futures (i.e., advance selling of wine before it is bottled) as a form of operational flexibility to mitigate quality rating risk. At the end of a harvest season, the winemaker obtains a certain number of barrels of wine that can be produced for a particular vintage. While the wine is aging in the barrel, expert reviewers taste the wine and create a barrel score, indicating the potential quality of the wine and offering clues as to whether, when bottled, it will be superior wine. Based on the barrel score, the wine producer determines (1) the percentage of its wine to be sold as futures and (2) the price of the wine futures. After one more year of aging, the wine is bottled, and the reviewers provide a second review of the wine and assign a bottle score that influences the market price of the wine. Our study makes three contributions. First, we develop an analytical model that incorporates uncertain consumer valuations of wine futures and bottled wine and the uncertain bottle rating that is assigned to the wine at the end of the production process. Our analysis provides insights into how the barrel score, consumer preference (through a conditional-value-at-risk perspective) and the winemaker's preference influence the winemaker's allocation and pricing decisions. Our second contribution relates to the impact of consumer heterogeneity on the optimal allocation and pricing decisions. Contrary to common belief that the winemaker may be better off when consumers are more homogeneous, our results demonstrate that the winemaker can achieve a higher level of profitability when the market is filled with consumers that are heterogeneous. Third, we test our findings using data collected from Bordeaux wineries engaging in wine futures. Our empirical analysis demonstrates that (1) barrel scores play a significant role in the two decisions regarding the quantity and price of wine futures, and (2) the wine futures market provides a sizable financial benefit to the winemakers. Our analysis yields recommendations for artisanal and boutique wineries that have limited or no experience selling wine futures.