I am an economist, appearing on this panel as an individual at the request of FTC staff. I own a small vineyard in Napa Valley, California, have sold grapes to large and small wineries, and am familiar with the positions taken by many of the people in the wine industry regarding the opportunities and limitations surrounding direct sales of wine to consumers. My intention, however, is to speak here as an advocate for consumers rather than as an advocate for the wine business. My work as a professional economist concentrates primarily on consumer behavior, with applications in marketing, health, and the environment. I do not have a specialty in the economics of the wine industry. I am the E. Morris Cox Professor of Economics at the University of California, Berkeley, and have served as President of the Econometrics Society and as vice-president of the American Economics Association. In 2000, I won the Nobel Prize in Economics for my work on consumer choice behavior.

In common with most economists, I believe that consumers benefit from free markets operated with the minimum government regulation required for consumer protection. The history of government regulation of markets is littered with examples of restrictions, ostensibly adopted on behalf of consumers, that instead protect concentrated economic interests at the consumers' expense. The restrictions on direct purchase of premium wines and their interstate shipment that have been adopted by a number of States are, I believe, another example of abuse of the regulatory process to protect concentrated economic interests, going far beyond the minimum regulations needed to maintain the integrity of State taxation and to protect minor consumers.

The paper has three basic objectives: (1) to discuss and analyze the subtleties of ranking wines in blind tastings, (2) to analyze the degree of agreement or disagreement among the tasters (judges) and (3) to shed some light on the problem of identifying the wines and to determine when the identifications of the judges might be called statistically significant. The first issue utilizes the rank sums or the related measure, “votes against,” and discusses the appropriateness of a statistical test introduced by Kramer. The second introduces Kendall's W coefficient of concordance and discusses some other, related measures. The third derives the finite sample distribution of the number of correct identifications under the null hypothesis of random identifications, from which critical values can be obtained, both for the case in which each wine has to be identified exactly and the case in which there is a small number of different types of wine that have to be identified. (JEL Classification numbers: C12, C15, C49, C59)

Analyses are made of two wine tastings, one of red and one of white wines, to compare French and American styles. It is concluded that there are differences between the wines and, in the case of the reds, national differences. It is shown that even skilled tasters can often be out by as much as 3 when judging on a scale from 0 to 20. For the statistician, Bayes factors are contrasted with F-values. (JEL classification: C11)

The hedonic technique is applied to wines. In the price equation we include objective characteristics appearing on the label, as well as sensory characteristics and a grade assigned by expert tasters. We have three almost identically structured data sets (two on Bordeaux wines, and one on Burgundy wines). The results are used to make comparisons between two of the most important wine regions in France, and comparisons over time (the two Bordeaux data sets are sampled at different points in time). (JEL Classification: D49.)

Another puzzle is the lack of correlation between price and pleasure. Perhaps it is not so surprising that a first-rate example of a little known wine can seem much more memorable than something more famous selling at ten times the price; part of the thrill is the excitement of discovery and the feeling of having beaten the system. What is more extraordinary is the wild price variation at the very top end. Demand bubbles up mysteriously, apparently fuelled by fashion and rumour as much as by intrinsic quality.—Jancis Robinson, Confessions of a Wine Lover, Penguin Books, 1997.

En primeur sales of Bordeaux grands crus occur every spring on the Bordeaux marketplace and represent the main source of supply for wine merchants. We address two specific issues related to the en primeur strategy. First, we study whether en primeur prices are good estimates of wines' qualities, as well as how they may reveal any relevant information to uninformed buyers. Second, we consider which roles en primeur sales may play between traders, given the market informational and competitive structures. (JEL classification: D42, D82, L15.)

Two series of Vickrey auctions have been performed to assess the effect of packaging information (bottle and label) on the reservation prices of ordinary consumers for five brut non-vintage Champagnes. As in other studies on wine tasting, packaging information is found to explain much more of the variation in willingness to pay than sensory information. Participants are unable, or unwilling, to put different values on the Champagnes after blind tasting, but significant differences in reservation prices appear when labels are disclosed. Detailed analysis of choices reveals a large heterogeneity in individual behaviors and valuations of the Champagnes included in this study. (JEL Classification: C91, D12)