Discussion: (50 comments)
Comments are closed.
A public policy blog from AEI
View related content: Carpe Diem
From the Wine Spectator Blog:
How much would you pay for a bottle of California Sauvignon Blanc?
The only wine from that category to ever earn a classic rating, the 2007 Merry Edwards Russian River Valley (96 points), cost $29, and the current vintage, 2011, is $30. So would you pay more than eight times that for a bottle of Screaming Eagle Sauvignon Blanc Napa Valley? No? Well what if I told you that you could immediately turn around and resell it for 10 times that price? (That’s more than $2,500 for a single bottle of Napa Sauvignon Blanc, for those still trying to do the math, at a profit of $2,250 per bottle.)
That was the conundrum facing a select group of Screaming Eagle mailing-list members this past summer when California’s most famous cult label released 100 six-packs of a 2010 Sauvignon Blanc priced at $1,500 each. The wines started showing up at auction soon thereafter, with a six-bottle lot in its original wooden case selling for $15,535 at a Spectrum auction in June.
Screaming Eagle’s representatives weren’t happy at all about the “wine scalping,” or what is known more politely in the wine business as “wine flipping.”
Here’s an economics quiz:
Q: According to economic theory, what should Screaming Eagle do to combat “wine flipping” of its Sauvignon Blanc in the future?
A. Increase production to put downward pressure on the price of its cult wine.
B. Increase its wine prices, which are currently way far below the “market-clearing” price?
C. Decrease wine production.
D. Answers A and B are correct.
If you answered D, you pass basic economic price theory, and if you answered C, you flunk basic economics.
Screaming Eagle’s owners selected answer C, flunked basic economics and announced that the winery would cut production of its 2011 vintage to just 300 bottles, half the number of bottles they produced for their 2010 cult variety. Here’s more from the article:
“The 2010 Screaming Eagle Sauvignon Blanc was for their personal use only,” Screaming Eagle direct-to-consumer manager Patrick Chapman told Wine-Searcher.com in June as the Spectrum auction bids were coming in. “And, of course, people said it was for their personal use only, but the reality is that it wasn’t. People are turning it over for profit, for their own selfish greed.”
Prediction: By halving the supply of the high-demand cult wine, the price will skyrocket and the incentive to “flip” Screaming Eagle will go up in the future, not down. As the author of the article points out, “If anything, the 2011 bottling’s rarity will only push demand—and its auction value—even higher.” If the goal is to reduce “flipping” my recommendation for Screaming Eagle is to follow economic theory and increase the supply of 2011 Sauvignon Blanc, not decrease it. Perhaps that’s not possible given growing constraints, etc. But in any case, Screaming Eagle should defiinitely raise the price of its sought-after wine.
HT: Mike Saltsman
Comments are closed.
1150 17th Street, N.W. Washington, D.C. 20036
© 2015 American Enterprise Institute for Public Policy Research