What is the price of quality? : Investigating the effect of increased wine quality on the price of a wine and how it may differ between a monopolised and a non-monopolised alcohol market.

Abstract: The purpose of this paper is to investigate the effect of an increased wine quality on the price of a wine and how this may differ between a country with a monopolized alcohol market and one that has not. The main reason for this comparison is to analyse whether the politics of the Swedish alcohol monopoly have succeeded in premiering quality over quantity drinking and if that has created possibilities for arbitrage trading of wine. Data regarding the price of wines was gathered from the Swedish alcohol monopoly’s website and VildMedVin, the largest e-commerce for wine in Denmark. One of the largest wine reviewers in the world, Wine Spectator, utilises a 1-100 scale when rating wines; this is used as a proxy for quality. By creating four different regression models it was found  that when it comes to wines that are more expensive than 99 SEK, there is no  statistically significant difference in the effect of quality on the price of a wine between Sweden and Denmark. Indicating that the law of one price might be what denies the possibility of arbitrage between a monopolised and a non-monopolised market is non- existent. There is, however, a general effect in both countries, an increase in quality by 1 unit is associated with an increase in the wine’s price by approximately 8%.