estimating the price elasticity of demand for wine...
TRANSCRIPT
![Page 1: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/1.jpg)
Estimating the Price Elasticity of Demand for Wine: Problems and
SolutionsPresented By
Steven S. Cuellar, Ph.D.Department of EconomicsSonoma State University
Presented atCompetitive Forces Affecting the Wine and
Wine Grape Industries: An International Conference on World Wine Markets
University of California, DavisDavis, CaliforniaAugust 10 2007
![Page 2: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/2.jpg)
Estimating the Price Elasticity of Demand for Wine Requires
Estimating the Demand Function for Wine
A Simple Demand Function for Wine is of the Form:
Q = α + αPrice + u
![Page 3: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/3.jpg)
Demand
Quantity
Price
Standard Downward Sloping Demand Curve
![Page 4: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/4.jpg)
Demand
Quantity
Price
Once the Demand Curve is Estimated, You Can Answer Questions Such As,
How Much Will I Sell At A Given Price?
P*
![Page 5: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/5.jpg)
Demand
Quantity
Price
Once the Demand Curve is Estimated, You Can Answer Questions Such As,
How Much Will I Sell At A Given Price?
P*
Q*
![Page 6: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/6.jpg)
Demand
Quantity
Price
OrHow Much Can I Charge For A Given
Quantity?
Q*
![Page 7: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/7.jpg)
Demand
Quantity
Price
OrHow Much Can I Charge For A Given
Quantity?
P*
Q*
![Page 8: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/8.jpg)
Demand
Quantity
Price
However, Price and Quantity are Simultaneously Determined by the Interaction of Supply and Demand.
![Page 9: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/9.jpg)
However, Price and Quantity are Simultaneously Determined by the Interaction of Supply and Demand.
Supply
Demand
Quantity
Price
P*
Q*
![Page 10: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/10.jpg)
When Price and Quantity Change,
Supply
Demand
Quantity
Price
P*
Q*
![Page 11: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/11.jpg)
New Supply
Demand
Quantity
Price
P**
Q**
Supply
P*
Q*
When Price and Quantity Change, How Do You Know Whether Supply
Changed
![Page 12: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/12.jpg)
Quantity
PriceSupply
P*
Q*
OrHow Whether Demand Changed
Demand
![Page 13: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/13.jpg)
New Demand
Quantity
Price
P**
Supply
P*
Q*
OrHow Whether Demand Changed
Demand
Q**
![Page 14: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/14.jpg)
Because Price and Quantity are Simultaneously Determined by Supply and Demand, Estimates Using OLS
Will Result in:
• Biased Coefficient Estimates
![Page 15: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/15.jpg)
Because Price and Quantity are Simultaneously Determined by Supply and Demand, Estimates Using OLS
Will Result in:
• Biased Coefficient Estimates• Inconsistent Coefficient Estimates
![Page 16: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/16.jpg)
Demand
Quantity
PriceSupply
P*
Q*
To Properly Estimate A Demand Function, You Must Be Able to Identify
or Trace Out The Demand Function
.
![Page 17: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/17.jpg)
New Supply
Demand
Quantity
Price
P**
Q**
Supply
P*
Q*
To Properly Estimate A Demand Function, You Must Be Able to Identify
or Trace Out The Demand Function
..
![Page 18: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/18.jpg)
Econometrically, We Use a Simultaneous Equations Model To Estimate The Demand
Function.
A Standard Demand and Supply Model:
QD = α0 + α1Price + α2Income + u
QS = β0 + β1Price + β2Input Price + v
![Page 19: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/19.jpg)
One Method of Estimating A Simultaneous Equations Model is
Through Instrumental Variable Estimation
![Page 20: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/20.jpg)
Since Price and Quantity are Simultaneously Determined, We Need to Find An Instrument or
Proxy for Price To Use in the Estimating Equation for Demand.
The Instrument Must Satisfy Two Properties:
1.Must Be Uncorrelated With the Error Term2.Must Be Highly Correlated with Price
![Page 21: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/21.jpg)
For Wine, What Would Work As A Good Instrument?
![Page 22: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/22.jpg)
For Wine, What Would Work As A Good Instrument?
Grape Prices
![Page 23: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/23.jpg)
For Wine, What Would Work As A Good Instrument?
Grape Prices1.Grape Prices Should Not Be Correlated With
the Error Term in the Demand Function.
![Page 24: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/24.jpg)
For Wine, What Would Work As A Good Instrument?
Grape Prices1.Grape Prices Should Not Be Correlated With
the Error Term in the Demand Function.
2.Grape Prices Should Be Highly Correlated With Wine Prices.
![Page 25: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/25.jpg)
What is the Relationship Between Grape Prices and Wine
Prices?
![Page 26: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/26.jpg)
What is the Relationship Between Grape Prices and Wine
Prices?
According To Andrew Beckstoffer of BeckstofferVineyards, the largest family, non-corporate
vineyard owner in Napa Valley, You Can Use the “Bottle Pricing Formula.”
![Page 27: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/27.jpg)
What is the Relationship Between Grape Prices and Wine
Prices?
According To Andrew Beckstoffer of BeckstofferVineyards, the largest family, non-corporate
vineyard owner in Napa Valley, You Can Use the “Bottle Pricing Formula.”
The Price Per Ton of Grapes in a Bottle of Wine is 100 times the Retail Price of that Bottle of
Wine.
![Page 28: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/28.jpg)
What Bottle Price?
![Page 29: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/29.jpg)
What Bottle Price?1. There is Considerable Price
Variation
![Page 30: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/30.jpg)
02
46
Per
cent
0 50 100 150 200Price Per 750 ML Bottle
Prices Ranges from 50 cents to $220 per bottleAverage Price $11.46
10th Percentile Price $5.0450th Percentile Price $9.2290th Percentile Price $19.67
Distribution of Prices
Source: AC Nielsen Scan Data
![Page 31: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/31.jpg)
Above $15Deluxe$12 - $15Ultra Premium$9 - $12Premium$6 - $9Pop-Premium
Under $6EconomyPrice PointCategory
Common Industry Price CategoriesUsed for example by AC Nielsen
![Page 32: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/32.jpg)
What Bottle Price?1. There is Considerable Price
Variation2. Wines vary not just by price but
by Varietal.
![Page 33: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/33.jpg)
Besides the Major Varietals
White• Chardonnay• Chenin Blanc• Gewurztraminer• Pinot Grigio• Riesling
Red• Merlot• Cabernet Sauvignon• Pinot Noir• Zinfandel• Syrah
There are Over 1,000 Varietals
![Page 34: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/34.jpg)
BLANC DE NOIRSBERNBARBERONE BIANCOASTI SPUMANTE
BLANC DE NOIRBERGERAC SECBARBERONEASSORTED RIESLING
BLANC DE BLANCBEREICH BERN RIESLINGBARBERA D ASTIASSORTED
BLANCBEREICH BERNBARBERA D ALBAASLE BURGUNDY
BLACK MUSCATBELLERUCHEBARBERAASLE
BLACK MAIDENBEEREN ASLEBARBEQUE WHITEARTHUR
BLACK DOG BLANCBEAUZEAUXBARBEQUE REDARTE ITALIANA
BLACK DOGBEAUJOLAIS VILLAGES CHAMEROYBARBEQUE BLUSHARNEIS
BLACK BEAUTY MRLTBEAUJOLAIS VILLAGESBARBARESCOARNALDO B ETCHART
BISTROBEAUJOLAIS VILLAGE NOUVEAUBANDA AZULARIA
BIG TATTOO WHITEBEAUJOLAIS VILLAGEBALLET OF ANGELSARCALE
BIG TATTOO REDBEAUJOLAIS ST LOUISBALD HEAD REDAPREMONT
BIG STUFF REDBEAUJOLAIS NOUVEAUBAIRRADAANTIGUAS
BIG REDBEAUJOLAIS BLANCBADSTOBE RIESLING SPATANTHOLOGY
BIG HOUSE PINKBEAUJOLAISBADGER BLUSHANTHILIA
BIEN NACIDO CUVEEBEAU NOIRBACO NOIRANGELI CUVEE
BIANCO DI TOSCANABEANBLOSSOM BLUSHBACCOROSA VINO SPUMANTEANGEL CHARDONNAY
BIANCOBEACON SHIRAZBACCHUS KABAMARONE DELLA VALPOLICELLA
BIANCABAY MIST JOHANNISBERG RIESLINGAYLER KUPP RIESLING KABAMARONE
BERN SPATBAROSSA CUVEEAVDATALPENGLOW
BERN KRF SPATBARONNEAUTUMN SWEET REDALLUVIUM BLANC
BERN KRF RIESLING SPATBARONESS NADINE CHARDONNAYAUTUMN BLUSH MUSCADINEALIGOTE
BERN KRF RIESLING ASLEBAROLOAUTUMN BLUSHALFRESCO RED
BERN KRF KABBARDOLINO NOVELLOAURORA CREAM WHITEALENTEJANO
BERN ASLEBARDOLINOAURORA CREAM REDALBARINO
First 100 Varietals Alphabetically
![Page 35: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/35.jpg)
Estimates of the Demand for Wine Should be for Specific
Varietals at Specific Price Points
![Page 36: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/36.jpg)
For this Presentation I Chose to Examine Merlot
![Page 37: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/37.jpg)
For this Presentation I Chose to Examine Merlot
Merlot is Well Represented in All Price Points
![Page 38: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/38.jpg)
For this Presentation I Chose to Examine Merlot
Merlot is Well Represented in All Price Points
Price Range $1.16 to $71.61 Per BottleMean Price $10.91
![Page 39: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/39.jpg)
For this Presentation I Chose to Examine Merlot
Merlot is Well Represented in All Price Points
Price Range $1.16 to $71.61 Per BottleMean Price $10.9110th Percentile Price $5.0250th Percentile Price $9.2690th Percentile Price $19.29
![Page 40: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/40.jpg)
Under $6
$6 to Under $9
$9 to Under $12
$12 to Under $15
Over $15
18%
40%
28%
11%
3%
![Page 41: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/41.jpg)
The Demand for Merlot
QDij = α0 + α1Priceij + α2Incomeij + uij
Where: • QD
ij -is case volume per month of Merlot inperiod i and price point j.
• Priceij -is the price per 750ML bottle of Merlotin period i and price point j.
•Incomeij -is a measure of income in period i.
![Page 42: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/42.jpg)
To Solve The Simultaneity Problem, We Use The Price Per
Ton of Merlot Grapes as an Instrument of the Price Per Bottle
of MerlotInstrumental Variable = GrapePriceij
Where: GrapePriceij - is The Mean Price Per Ton of Merlot
Grapes in period i and price point j
![Page 43: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/43.jpg)
Each Price Point is Defined Using the Following Price Categorization
Above $15Deluxe$12 - Under $15Ultra Premium$9 - Under $12Premium$6 - Under $9Pop-Premium
Under $6Economy
Price PointCategory
![Page 44: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/44.jpg)
Each Price Point is Defined Using the Following Price Categorization
Above $1,500Above $15Deluxe$1,200 - Under $1,500$12 - Under $15Ultra Premium$900 - Under $1,200$9 - Under $12Premium$600 - Under $900$6 - Under $9Pop-Premium
Under $600Under $6Economy
Grape PricesPrice PointCategory
Using the Bottle Price Formula,Grape Prices Per Ton for Each Price Point
Are Shown in the Table
![Page 45: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/45.jpg)
Price Point 1Under $6
Absolute value of t-statistics in parentheses* significant at 5% level; ** significant at 1% level
0.03R-squared
76567656Observations
-0.26-0.44
47.48820.866Constant
-0.27-0.34
-0.191-0.095Timetrend
-0.68-1.32
0.4180.335Summer
-0.36-0.78
0.3880.228Spring
-0.29-0.62
0.3390.167Winter
-0.23-0.36
-5.253-1.9Income
(2.19)*(3.84)**
-6.8291.244Price
CasesCases
IVOLS
![Page 46: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/46.jpg)
Price Point 2$6 - Under $9
Price Point 1Under $6
Absolute value of t-statistics in parentheses* significant at 5% level; ** significant at 1% level
00.03R-squared
8026802676567656Observations
-0.27-0.02-0.26-0.44
-5.4260.36347.48820.866Constant
-0.18-0.42-0.27-0.34
-0.018-0.037-0.191-0.095Timetrend
-0.29-0.56-0.68-1.32
-0.027-0.0450.4180.335Summer
-0.48-0.46-0.36-0.78
0.0450.0410.3880.228Spring
-1.04-1-0.29-0.62
0.0910.0830.3390.167Winter
-0.27-0.25-0.23-0.36
0.4630.416-5.253-1.9Income
(4.52)*(2.74)**(2.19)*(3.84)**
-3.4830.357-6.8291.244Price
CasesCasesCasesCases
IVOLSIVOLS
![Page 47: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/47.jpg)
Price Point 3$9 - Under $12
Price Point 2$6 - Under $9
Price Point 1Under $6
Absolute value of t-statistics in parentheses* significant at 5% level; ** significant at 1% level
0.0100.03R-squared
868686868026802676567656Observations
-0.22-1.58-0.27-0.02-0.26-0.44
9.91522.919-5.4260.36347.48820.866Constant
-0.47-0.69-0.18-0.42-0.27-0.34
0.1790.059-0.018-0.037-0.191-0.095Timetrend
-1.45(2.05)*-0.29-0.56-0.68-1.32
-0.176-0.156-0.027-0.0450.4180.335Summer
-0.57-0.94-0.48-0.46-0.36-0.78
-0.172-0.0810.0450.0410.3880.228Spring
-0.41-0.34-1.04-1-0.29-0.62
-0.089-0.0270.0910.0830.3390.167Winter
0.481.03-0.27-0.25-0.23-0.36
5.2371.6760.4630.416-5.253-1.9Income
-0.3(7.25)**(4.52)*(2.74)**(2.19)*(3.84)**
-1.363-1.701-3.4830.357-6.8291.244Price
CasesCasesCasesCasesCasesCases
IVOLSIVOLSIVOLS
![Page 48: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/48.jpg)
Price Point 4$12 - Under $15
Price Point 3$9 - Under $12
Price Point 2$6 - Under $9
Price Point 1Under $6
Absolute value of t-statistics in parentheses* significant at 5% level; ** significant at 1% level
0.010.0100.03R-squared
71517151868686868026802676567656Observations
-0.05-0.97-0.22-1.58-0.27-0.02-0.26-0.44
-2,344.6315.8289.91522.919-5.4260.36347.48820.866Constant
-0.05-0.01-0.47-0.69-0.18-0.42-0.27-0.34
-2.850.0010.1790.059-0.018-0.037-0.191-0.095Timetrend
-0.05-0.58-1.45(2.05)*-0.29-0.56-0.68-1.32
-4.292-0.049-0.176-0.156-0.027-0.0450.4180.335Summer
-0.05-0.16-0.57-0.94-0.48-0.46-0.36-0.78
-3.0730.015-0.172-0.0810.0450.0410.3880.228Spring
-0.05-1.27-0.41-0.34-1.04-1-0.29-0.62
-5.7940.113-0.089-0.0270.0910.0830.3390.167Winter
0.05-0.480.481.03-0.27-0.25-0.23-0.36
44.019-0.8775.2371.6760.4630.416-5.253-1.9Income
-0.05(6.85)**-0.3(7.25)**(4.52)*(2.74)**(2.19)*(3.84)**
-.669-1.646-1.363-1.701-3.4830.357-6.8291.244Price
CasesCasesCasesCasesCasesCasesCasesCases
IVOLSIVOLSIVOLSIVOLS
![Page 49: Estimating the Price Elasticity of Demand for Wine ...wineconferenceaugust07.ucdavis.edu/presentations/elasticity.pdf · Estimating the Price Elasticity of Demand for Wine: Problems](https://reader030.vdocuments.us/reader030/viewer/2022021711/5b3c7a347f8b9a28308b55db/html5/thumbnails/49.jpg)
Price Point 5$15 & Above
Price Point 4$12 - Under $15
Price Point 3$9 - Under $12
Price Point 2$6 - Under $9
Price Point 1Under $6
Absolute value of t-statistics in parentheses* significant at 5% level; ** significant at 1% level
.630.01.720.01.320.01.68.06.490.23R-squared
4345434571517151868686868026802676567656Observations
-0.02-0.99-0.05-0.97-0.22-1.58-0.27-0.02-0.26-0.44
3,977.70-17.072-2,344.6315.8289.91522.919-5.4260.36347.48820.866Constant
-0.02-0.8-0.05-0.01-0.47-0.69-0.18-0.42-0.27-0.34
-1.487-0.081-2.850.0010.1790.059-0.018-0.037-0.191-0.095Timetrend
-0.02-0.64-0.05-0.58-1.45(2.05)*-0.29-0.56-0.68-1.32
9.289-0.058-4.292-0.049-0.176-0.156-0.027-0.0450.4180.335Summer
-0.02-0.12-0.05-0.16-0.57-0.94-0.48-0.46-0.36-0.78
5.098-0.012-3.0730.015-0.172-0.0810.0450.0410.3880.228Spring
-0.02-1.59-0.05-1.27-0.41-0.34-1.04-1-0.29-0.62
9.4770.148-5.7940.113-0.089-0.0270.0910.0830.3390.167Winter
0.021.370.05-0.480.481.03-0.27-0.25-0.23-0.36
130.42.63644.019-0.8775.2371.6760.4630.416-5.253-1.9Income
-0.02(5.36)**-0.05(6.85)**-0.3(7.25)**(4.52)*(2.74)**(2.19)*(3.84)**
-.977-1.159-.669-1.646-1.363-1.701-3.4830.357-6.8291.244Price
CasesCasesCasesCasesCasesCasesCasesCasesCasesCases
IVOLSIVOLSIVOLSIVOLSIVOLS