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Globalisation and the Institutional Re-embedding of Markets: The Political Economy of Price Formation in the Bordeaux En Primeur Market

2007; Taylor & Francis; Volume: 12; Issue: 2 Linguagem: Inglês

10.1080/13563460701302976

1469-9923

Colin Hay,

Economic Theory and Policy

Click to increase image sizeClick to decrease image size I am greatly indebted to Paul Jones, Paul Lewis, Matthew Watson, Dan Wincott and three anonymous referees for their encouraging yet incisive comments on earlier versions of the argument here presented, and to all those I interviewed in conducting the project whose findings I here report. Notes 1. See, for instance, Sven Arndt, 'Globalisation and the Open Economy', North American Journal of Economics and Finance, Vol. 8, No. 1 (1997), pp. 71–9; Theodore Levitt, 'The Globalisation of Markets', Harvard Business Review, May–June (1983), pp. 2–11; Christopher Martin, 'Price Formation in an Open Economy', The Economic Journal, Vol. 107, No. 444 (1997), pp. 1391–401; Ronald W. Jones, Globalisation and The Theory of Input Trade (MIT Press, 2000). For a rather different perspective, see Elmar Altvater & Birgit Mahnkopf, 'The World Market Unbound', Review of International Political Economy, Vol. 4, No. 3 (1997), pp. 448–71. 2. There is, of course, something rather paradoxical about this. For although the efficient market hypothesis is widely invoked by political economists in discussions of the global integration of product markets, it is, in neoclassical economics, a notion which applies exclusively to capital markets. See Eugene Fama, 'Efficient Capital Markets: A Review and Theory of Empirical Work', Journal of Finance, Vol. 25, No. 2 (1970), pp. 383–417; 'Efficient Capital Markets II', Journal of Finance, Vol. 46, No. 5 (1991), pp. 1575–617. 3. See, for instance, Mark Granovetter, 'Economic Action and Social Structure: The Problem of Embeddedness', American Journal of Sociology, Vol. 91, No. 3 (1985), pp. 481–510; Neil Fligstein, 'Markets as Politics: A Political–Cultural Approach to Market Institutions', American Sociological Review, Vol. 61, No. 4 (1996), pp. 656–73. 4. Neil Fligstein, The Architecture of Markets: An Economic Sociology of Twenty-First Century Capitalist Societies (Princeton University Press, 2002); John L. Campbell, Institutional Change and Globalisation (Princeton University Press, 2004). 5. Though this is, strictly speaking, a futures market in the sense that a contract exists for the exchange of a commodity at some specified point in the future, it is not a futures market in the conventional sense of the term. For, at least as far as the primary market (which forms the subject of this article) is concerned, prices do not fluctuate. The secondary market in en primeur wines is, however, a futures market in a more conventional way. Indeed, since consumers invariably have so little direct information about the product they acquire in advance of the moment of consumption itself, whether the product is purchased en primeur or once it is released by the château, the secondary market for fine wines arguably resembles more closely a futures market than it does any other kind of market. 6. Compare, for instance, William Echikson, Noble Rot: A Bordeaux Wine Revolution (W. W. Norton & Co., 2004), and Stephen Brook, Bordeaux: People, Power and Politics (Mitchell Beazley, 2001). 7. So as to restrict the analysis to the Médoc, Château Haut-Brion, a premier cru classé wine in the 1855 classification and the sole representative of a non-Médoc appellation, is excluded from the dataset. In fact this single omission does not affect the statistical significance of any of the findings here reported. On the 1855 classification itself, see Dewey Markham Jr, 1855: A History of the Bordeaux Classification (John Wiley and Sons, 1998). 8. At the time of writing, the new 2006 official classification of the wines of Saint-Émilion had not been published. Yet had it been, it would still have been appropriate to use the 1996 classification, since this was the official classification for the duration of the 2005 en primeur campaign. The 68 wines included in this dataset are the first wines of Châteaux Angelus, L'Archange, L'Arrossée, Ausone, Balestard le Tonnelle, Barde Haut, Beauséjour-Bécot, Beauséjour, Belair, Bellevue, Bellevue Mondotte, Bellisle Mondotte, Canon, Canon La Gaffelière, Cap de Mourlin, Chauvin, Cheval Blanc, Clos Badon Thunevin, Clos Dubreuil, Clos Fourtet, Clos des Jacobins, Clos de l'Oratoire, Clos Saint-Julien, Clos Saint-Martin, Clos de Sarpe, Corbin, Corbin Michotte, Côte de Baleau, Croix de Labrie, Dassault, Destieux, La Dominique, Faugères, Ferrand Lartigue, Figeac, La Fleur Cardinale, Fombrauge, Franc Mayne, La Gaffelière, La Gomerie, Grand Corbin-Despagne, Grand Mayne, Grand Pontet, Les Grands Murailles, Les Gravières, L'Hermitage, Larcis Ducasse, Laroze, Lucia, Lusseau, Lynsolence, Magdelaine, Magrez Fombrauge, Milens, Monbousquet, La Mondotte, Moulin Saint-Georges, Pavie, Pavie Decesse, Pavie Macquin, Quinault l'Enclos, Rochebelle, Rol Valentin, La Tour Figeac, Troplong Mondot, Trottevieille, Valandraud and Yon-Figeac. These wines were chosen on the basis of the availability of a Parker rating for 2005 and release price details for 2004 and 2005. 9. In the 2005 campaign this has been further complicated by some of the most prestigious properties (including a number of Médoc premiers crus) effectively rationing supply by holding back a significant proportion of their production and releasing only one tranche en primeur. In so doing they surely envisage an intervening increase in the value of their wine on the secondary market, allowing second and subsequent tranches to be released at considerably higher prices than the first. 10. Interestingly, my interviews with brokers and merchants suggest that there is some evidence of the autonomy of négociants house from the leading châteaux being challenged. Conscious as never before of the criticism that unprecedented release prices in 2005 might serve to price private clients and collectors out of the market, the first growths in particular played a far more active role in the allocation of wines in the 2005 en primeur campaign. Typically, they sought to steer allocations towards brokers and merchants with well-established lists of private, as opposed to corporate, clients (Interview, Mark Bedini, CEO, Fine & Rare Wines, June 2006). 11. For a summary and review of both perspectives see, in particular, Elin McCoy, The Emperor of Wine: The Rise of Robert M. Parker Jr. and the Reign of American Taste (Harper Collins, 2005). The most sustained critique of Parker's role in the Americanisation of global consumer preferences for fine wine is contained in Jonathan Nossiter's highly acclaimed film Mondovino (20th Century Fox, 2004). See also Hugh Johnson, Wine: A Life Uncorked (Weidenfeld & Nicolson, 2005), pp. 40–4; Brook, Bordeaux, pp. 104–8. The case for the defence is made most cogently by Echikson, Noble Rot. 12. The information for this was taken from Bruno Boidron (ed.), Cocks & Feret's Bordeaux and Its Wines, 17th edn (Editions Feret, 2004). 13. Both sets of ratings were published online in April. They were then published in Wine Spectator, Vol. 31, No. 5 (30 June 2006) and Wine Advocate, No. 164 (24 April 2006), respectively. 14. For a more detailed analysis see Colin Hay, 'Who's Buying 2005 Bordeaux En Primeur … and Who's Going To Drink It?', Decanter, Vol. 33, No. 2 (October 2006), pp. 270–4. 15. I am indebted to the comments of an anonymous referee in suggesting this line of thought to me. 16. I am not, of course, suggesting that there is a causal relationship between the two. Release date does not determine price levels, just as price levels do not determine release date. We come to the very interesting questions of causality presently. 17. Stepwise entry multiple regression is sometimes seen as a controversial technique, especially where there is a danger that issues of correlation and causation be confused. Yet, since all of the potential independent variables (critics' ratings published prior to the campaign, and characteristics of the wines and châteaux) are clearly causally prior to the dependent variable (release price), such concerns are largely obviated. In such a context the technique has some advantages. It is chosen here so as not to impose upon the data a particular model. Instead, I have selected an array of potentially significant independent variables, leaving it to the stepwise entry method to incorporate some of these into consecutive regression equations on the basis of their ability alone to account for variance in the dependent variable. All regression models produced using stepwise entry techniques were re-analysed (and, indeed, further confirmed) using forward and backward entry techniques. Finally, the very similar form of the four regression equations produced in this section lends further plausibility to the models produced using this technique. 18. There has, of course, been only one change to the 1855 official classification in its 150 year history. Château Mouton-Rothschild was eventually elevated to premier cru classé status in 1973. Part of the justification for this was that its wines has consistently attained first growth prices en primeur. 19. Listed alphabetically these wines are Châteaux Boyd-Cantenac (Margaux), Branaire Ducru (Saint-Julien). Brane Cantenac (Margaux), Cantenac Brown (Margaux), Calon-Ségur (Sainte-Estèphe), d'Issan (Margaux), Duhart-Milon (Pauillac), La Lagune (Haut Médoc), Lagrange (Saint-Julien), Langoa-Barton (Saint-Julien), Lascombes (Margaux), Léoville-Barton (Saint-Julien), Léoville-Poyferré (Saint-Julien), Malescot Saint.-Exupéry (Margaux), Rauzan-Gassies (Margaux), Rauzan-Ségla (Margaux) and Saint-Pierre (Saint-Julien). 20. Listed alphabetically these wines are Châteaux ∗d'Armailhac (Pauillac), Boyd-Cantenac (Margaux), Branaire Ducru (Saint-Julien), Brane Cantenac (Margaux), Calon-Ségur (Sainte-Estèphe), ∗Clerc-Milon (Pauillac), d'Issan (Margaux), Duhart-Milon (Pauillac), ∗Grand Puy Ducasse (Pauillac), La Lagune (Haut Médoc), Lagrange (Saint-Julien), Lascombes (Margaux), Léoville-Barton (Saint-Julien), Léoville-Poyferré (Saint-Julien), ∗Lynch-Moussas (Pauillac), Malescot Saint-Exupéry (Margaux), ∗Pichon-Baron (Pauillac), ∗Pontet-Canet (Pauillac), Rauzan-Gassies (Margaux) and Rauzan-Ségla (Margaux). Those marked ∗ did not feature in the negative residuals of the previous model. 21. Château Pichon-Baron, a highly regarded 'super second', is the exception. Like Château Léoville-Barton in Saint-Julien, it is a wine which has acquired a consistent reputation for high quality yet a relatively modest release price when compared to that of its peers. 22. Indeed, the problem was not just the ripeness of the fruit. Rain in October swelled the grapes, diluting the juice, before optimal ripeness had been attained. 23. See, for instance, Pierre Combris, Sebastian Lecocq & Michael Visser, 'Estimation of a Hedonic Price Equation for Bordeaux Wine: Does Quality Matter?', The Economic Journal, Vol. 107, No. 441 (1997), pp. 389–402; G. Jones & K. Storchmann, 'Wine Market Prices and Investment Under Uncertainty: An Econometric Model for Bordeaux Crus Classés', Agricultural Economics, Vol. 26, No. 2 (2001), pp. 115–33; S. Landon & C. Smith, 'The Use of Quality and Reputation Indicators By Consumers: The Case of Bordeaux Wine', Journal of Consumer Policy, Vol. 20, No. 3 (1997), pp. 289–323; S. Landon & C. Smith, 'Quality Expectations, Reputation and Price', Southern Economic Journal, Vol. 64, No. 3 (1998), pp. 628–47. 24. See Robert Parker, '2004 Bordeaux', Wine Advocate, No. 165 (June 2006), pp. 2–14. 25. See, for instance, Landon and Smith, 'The Use and Quality and Reputation Indicators'.