The Panic of 2008 and subsequent recession have put a damper on the wine market, especially at the high end. As a member of too many wine clubs (still the best way to access fine West Coast wine from the East Coast), I have seen more discounting by wineries in the last six months than I observed in the previous six years.
So it should not be surprising to see a bevy of entrepreneurs pop up who are attempting to exploit these depressed conditions. The Los Angeles Times published an intriguing story by reporter Patrick Comiskey about new web-based vendors doing exactly what we’d expect (“Good deals go fast on wine websites,” July 8, 2009). Of the vendors Comiskey mentions, Wines ‘Til Sold Out seems to have the most unusual business plan: they sell tranches of a single wine, one at a time, first come first served, presumably (but not verifiably) until they are sold out — then move on to another wine.
After reading the article, I signed up with Wines ‘Til Sold Out to investigate.
SEE UPDATES BELOW
After receiving several email offers, it occurred to me that Wines ’til Sold Out might be exaggerating the release price to make its sales price look more appealing. This is, off course, hardly an unusual (if ethically dubious) business practice. Nevertheless, it is an example of asymmetric information — a form of market “failure” that government often uses as a justification for regulation — popularized in economics by George Akerlof’s seminal study of the used automobile market (“The Market for Lemons“).
In the typical case of asymmetric information, the seller (or buyer) has information he does not want to reveal to the buyer (or seller) because it would undercut his market price. The parties disadvantaged by informational asymmetry takes this into account, however, and the market price is bid down. Buyers (or sellers) of high quality goods and services thus have incentives to distinguish themselves in the market, and they do so by taking pains to relive the informational asymmetry.
The suspicion in this case is that WTSO was misrepresenting information, not merely withholding it. But there are other sources for this information, and in the Internet age it isn’t hard to find it. Thus, prospective customers can choose to verify the seller’s claims before deciding whether to buy.
UPDATE: The plug-in software used to display the data tabularly is no longer supported.
For each wine offered for sale by WTSO since joining, I obtained release prices from Wine Spectator if WS had reviewed and rated it, or from the winery otherwise. This back-up plan worked on several occasions for California wines but not for French or Italian wines.
The table below is interactive.
- WTSO Offer List: Complete list of email offers received to date, in reverse order.
- Offers by Country of Origin: Chart showing offers by country of wine origin. About half are from US (California). Click on (2) in the graph to see the updated figures.
- Average Percent Exaggeration of ‘Original’ Price by Country of Origin: At original posting, this was typically about 20%. Italy has a small sample size; a verified release price was found for only one of the nine offers. Click on (3) in the graph to see the updated figures.
- Average Percent Exaggeration of ‘Original’ Price by Wine Spectator Rating Decile: Wine Spectator’s 100-point scale is one of several alternative quality ranking schemes. Small differences are subject to controversy but deciles are not. At original posting, the average percentage by which WTSO exaggerated the original price was about 10% for wines rated below 90, and about 30% for wines rated 90 and above. For wines without a Wine Spectator ranking, the average exaggeration was about 45% at original posting. Click on (4) in the graph to see the updated figures.
At original posting, release prices were not determined for about half of the wines offered, so the extent of original price exaggeration cannot be determined for them. However, it is notable that in every instance where the release price could be found, it was less than the “original” price cited by WTSO.
We are keeping the database updated until further notice to provide real-time updates. Bookmark this page to see if Wines ‘Til Sold Out changes its business practices.
Many wines WTSO is selling have not been rated by Wine Spectator, which limits the sample sizes shown below for (4) — the graph showing the average percentage of release price exaggeration by WS decile. In several cases, WTSO publishes a rating by Jonathan H. Newman, the proprietor of Newman Wine & Spirits, a suburban Philadelphia distributor. We’ve noticed that Newman also is a distributor of several of the wines marketed by WTSO. In these cases, there is at least the perception of a conflict of interest and WTSO does not reveal the business relationship..
To conduct a running test of the hypothesis that there is no difference in the degree to which WTSO exaggerates the release price when Newman is involved, we’ve added his ranking and included as a separate variable whether his firm is distributing for the winery.
UPDATE August 9, 2009
Obtaining valid and reliable data to test the new hypothesis proposed on July 28 has proved to be too difficult, and is now a
We have revised our analysis accordingly:
- WTSO Offer List. We have independently verifiable release prices for 26 of the 86 wines (30%). The proportion of wines without independent release price data is 75% for France (6 of 8) and Spain (3 of 4), 60% for Italy (12 of 20), 50% for Argentina (2 of 4), 26% for US (11 of 43), and 17% for Australia (1 of 6), Exaggeration is lowest on average for US (i.e., California) wines (14%
- Average Percent Exaggeration of ‘Original’ Price by Country of Origin: Among the 26 for which data were obtained, WTSO’s average percent exaggeration of release prices is 22%. By country of origin, average exaggeration is 51% for Italy, 27% for Australia, 4% for France, and 14% for US).
- Average Percent Exaggeration of ‘Original’ Price by Wine Spectator Rating Decile: The average percentage by which WTSO exaggerates the release price rises with the Wine Spectator rating decile. Average exaggeration is 9% for wines rated below 80 (N = 1), 20% for wines rated 80 to 89 (N = 15), and 31% for wines rated 90 and above (N = 10). There are 25 wines for which a Wine Spectator rating was unavailable, and the average exaggeration of release price was 22%.
UPDATE: For a more thorough statistical analysis, see:
- WTSO does not sell a single wine “until sold out.” The elapsed time between offers is uncorrelated with price, quality, type, or national origin.
- Exaggerating “original” prices yields a small statistically significant profit of about $0.30/bottle. Profit from disinformation about price ranged from 15-30%
- Misrepresenting quality (by reporting only the highest independent ratings) yields a statistically significant profit of about $2.90 per average rating point undisclosed per bottle. Profit from misinformation about quality was statistically significant and large ($10.64/bottle for each average rating point undisclosed) for French wines only. For all other wines, profit was not statistically significant. For Chilean and South African wines, the estimated coefficient was negative, meaning that misrepresenting quality may have reduced profit.
- The subsample may not be representative of all WTSO offers.
- WTSO wines may not be representative of all wines sold via flash sales.
- WTSO may not be representative of all sellers in the flash sales market.