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American Wine Economics

American Wine Economics: An Exploration of the U.S. Wine Industry

James Thornton
Copyright Date: 2013
Edition: 1
Pages: 363
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  • Book Info
    American Wine Economics
    Book Description:

    The U.S. wine industry is growing rapidly and wine consumption is an increasingly important part of American culture.American Wine Economicsis intended for students of economics, wine professionals, and general readers who seek to gain a unified and systematic understanding of the economic organization of the wine trade.The wine industry possesses unique characteristics that make it interesting to study from an economic perspective. This volume delivers up-to-date information about complex attributes of wine; grape growing, wine production, and wine distribution activities; wine firms and consumers; grape and wine markets; and wine globalization. Thornton employs economic principles to explain how grape growers, wine producers, distributors, retailers, and consumers interact and influence the wine market. The volume includes a summary of findings and presents insights from the growing body of studies related to wine economics.Economic concepts, supplemented by numerous examples and anecdotes, are used to gain insight into wine firm behavior and the importance of contractual arrangements in the industry. Thornton also provides a detailed analysis of wine consumer behavior and what studies reveal about the factors that dictate wine-buying decisions.

    eISBN: 978-0-520-95701-5
    Subjects: Environmental Science

Table of Contents

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  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Illustrations
    (pp. ix-x)
  4. List of Tables
    (pp. xi-xii)
  5. Preface
    (pp. xiii-xiv)
  6. Acknowledgments
    (pp. xv-xvi)
  7. Introduction
    (pp. 1-10)

    This book focuses on the organization, structure, and institutional features of the wine industry in the United States, and on how U.S. grape growers, wine producers, distributors, retailers, and consumers interact and behave in the market for wine. Wine production and consumption are becoming an increasingly important part of American culture. The U.S. wine industry is growing rapidly and now embraces thousands of firms, ranging in size from small family-run businesses to large modern corporations, including multinational conglomerates. Many of these firms have nonprofit as well as profit objectives. The wine market includes not only buyers who are brand-loyal but...

  8. 1 The Economic Approach to the Study of Wine
    (pp. 11-33)

    To explain the economic organization of wine production and consumption and the behavior of American wine firms and consumers, it is necessary to apply a set of basic economic concepts and principles. This chapter begins by explaining the important ideas of scarcity, choice, opportunity cost, rational self-interest, and economic incentives. These concepts are then used to develop the logic of choices by wine consumers and wine firms and the principles of individual demand and supply. Lastly, supply-and-demand analysis is presented as an analytical tool that can be used to organize our thinking about how buyers and sellers interact in the...

  9. 2 The Wine Product
    (pp. 34-40)

    An important characteristic of the structure of a market is the nature of the product bought and sold. Wine is a complex and intriguing product with unique qualities that make it significantly different from a typical manufactured good. To understand the wine market and how consumers and producers behave, it is necessary to have sufficient knowledge of the characteristics of the wine product. This chapter views wine as both an agricultural and economic good, and relates it to the economic activities required for its production and sale to consumers.

    Wine is an agricultural good made from grapes by the natural...

  10. 3 Wine Sensory Characteristics
    (pp. 41-52)

    Wine is a complex good. To provide a better understanding of its nature, this chapter discusses its sensory characteristics in some detail, drawing from the literature on wine appreciation and wine science.¹ Knowledge of how wine professionals think about and describe the appearance, smell, and taste of wine is germane to wine economics. These professionals are either direct participants in the wine industry or may influence others who make economic decisions in this market. Moreover, information on factors that influence the sensory characteristics of wine is necessary for an understanding of grape growing and wine production, and the economic choices...

  11. 4 Grape Growing
    (pp. 53-71)

    The most important input used to produce wine is grapes. This chapter focuses on the economic activity of grape growing, which encompasses three important nonsensory aspects of wine production: grape variety, grape location, and viticulture. Basic knowledge of grapes and viticulture is necessary for a fuller appreciation of the nature of the complex wine product, as well as an understanding of wine-firm behavior and the wine market. As this chapter will highlight, numerous options are available to commercial vineyards and wine firms in growing wine grapes, and the specific decisions that are made affect both the quality of the wine...

  12. 5 Grape Markets and Supply Cycles
    (pp. 72-82)

    Growers must choose the quantity of grapes to produce and the manner in which to sell them. Grapes can be sold either on a spot market or a long-term contract market. Many wine-market observers believe the way in which growers make output decisions produces regularly recurring grape supply and price cycles that culminate in repeated periods of boom and bust. This chapter provides a description of the institutional features of the market for wine grapes and an economic analysis of the cyclical nature of wine-grape production and prices.

    Wine grapes are sold on both a long-term contract market and a...

  13. 6 Wine Production
    (pp. 83-104)

    This chapter discusses the economic activity of wine production. In economics, production is defined as the transformation of inputs into output. Economists typically use an analytical device called a production function to represent or describe a production process. A production function treats a production process as a “black box.” Inputs—such as grapes, the services of cellar workers and a winemaker, and the services of fermentation and maturation tanks—enter the box at one end and maximum wine output emerges at the other end. The activities that take place within the box are ignored. The production function, which is a...

  14. 7 Bulk Wine, Private-Label Wine, and Wine Alcohol
    (pp. 105-123)

    This chapter focuses on three important topics related to wine production: bulk wine, private-label wine, and wine alcohol. The bulk-wine market plays a little-known but important role in the economic organization of the wine industry. It allows for greater efficiency in resource use by producers and increased product choice for consumers. The characteristics of the bulk-wine market are described and a supply and demand framework is used to explain how wine firms interact in this market and factors that affect the price of bulk wine and the volume of transactions. Closely related to bulk wine is private-label wine, a proprietary...

  15. 8 Wine Distribution and Government Regulation
    (pp. 124-148)

    After a wine has been produced and packaged it must be distributed to consumers. The wine distribution system in the United States is very complex. Each state has its own regulations governing the distribution and sale of alcoholic beverages, which impose restrictions on the choices a wine firm has for delivering products to consumers. This chapter focuses on the three principal channels through which wine firms can sell their products to consumers and the regulatory constraints they confront when using each of these. It also examines the economic rationale for government regulation of wine distribution and sales, and whether these...

  16. 9 The Wine Firm
    (pp. 149-179)

    The principal decision-making unit in the wine industry is the wine firm. But what is a wine firm? Interestingly, this question does not have a simple and unequivocal answer. The termfirmis commonly used to describe different types of organizations. The economics literature contains various definitions of a firm, each of which provides a somewhat different way to view this type of organization.¹ While several of these definitions are complementary, a consensus does not exist on the single best way to conceptualize a firm in all circumstances. With this in mind, the goal of this chapter is to propound...

  17. 10 Wine-Firm Behavior
    (pp. 180-207)

    A wine firm is a legal entity that organizes and coordinates the production and sale of wine. To do this, it must make a number of economic decisions that are limited by available technology, market environment, and government regulations. Collectively, these constrained decisions determine how a wine firm will behave. The focus of this chapter is on two facets of wine-firm behavior. The first involves wine quality and price. How do wine firms choose the price and quality of their products and convey information about quality to consumers? The second is the sourcing decision. How do wine firms choose which...

  18. 11 The Wine Consumer and Demand
    (pp. 208-239)

    According to the Wine Market Council, there are one hundred million wine consumers in the United States. About eleven million of these drink wine every day, another forty-five million consume wine at least once a week, and the rest typically imbibe a couple of times a month. A typical American wine consumer drinks about thirty-five bottles of wine per year or three and one-half five-ounce glasses per week. In the aggregate, wine consumers in the United States drink the equivalent of 295 million cases of wine per year, the largest total consumption of any nation in the world, but per...

  19. 12 The Wine Consumer, Quality, and Price
    (pp. 240-275)

    As discussed in chapter 2, wine quality refers to the bundle of common sensory and nonsensory characteristics that wine products possess. All wines have a particular appearance, smell, and taste that result largely from grape variety, vineyard location, viticultural practices, winemaking techniques, and vintage. Differences in quality result from differences in the amounts of these characteristics embodied in different wines. To assess quality, it is necessary to determine the value consumers place on additional units of wine characteristics. Once the value of these characteristics is measured, they can be related to wine demand and price. The greater the value of...

  20. 13 The Globalization of Wine
    (pp. 276-298)

    Historically, most of the wine consumed in the United States was produced by domestic wine firms that exported little of their output for sale abroad. Foreign wine firms and their products were a relatively insignificant component of the U.S. wine industry. Wine markets in other nations were also characterized by local production and consumption. The exception was France and Italy, which consumed mostly domestic wine, but also exported a substantial amount of wine to other European countries. Over the past several decades, world wine markets have become increasingly integrated. Retail store shelves in the United States and other nations are...

  21. Conclusion
    (pp. 299-308)

    The purpose of this book has been to explore wine in America from an economic perspective. The principal goal has been to explain the economic organization of the U.S. wine industry, and how individuals interact and behave in their role as wine producers and consumers. A set of fundamental economic concepts and principles have been used to organize the approach taken to the study of wine. This chapter highlights and summarizes insights from these guiding principles and the results of empirical studies presented in this book.

    Economics recognizes that resources are scarce relative to wants and desires, and wine producers...

  22. Notes
    (pp. 309-326)
  23. References
    (pp. 327-336)
  24. Index
    (pp. 337-350)