Discussion Paper Details

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Title: Development Uncorked: Reputation Acquisition in the New Market for Chilean Wines in the UK

Author(s): Rocco Macchiavello

Publication Date: February 2010

Keyword(s): intermediation, learning, reputation and trade costs

Programme Area(s): Development Economics, Industrial Organization and International Trade and Regional Economics

Abstract: This paper studies learning effects in new markets using a panel of relationships between Chilean wineries and distributors in the UK. Controlling for winery, distributors and time effects, FOB prices increase by at least three percent with every additional year in a relationship while export volumes do not drop. The implied shift in demand is not explained by improvements in product quality, or by distributor, product and match-specific effects. FOB prices responses to relationship specific exogenous changes in marketing costs induced by exchange rates dynamics suggest that wineries bargaining power increases over time. Following their first relationship in the market, wineries are re-matched to distributors of higher quality. The evidence suggests that learning about wineries is an important determinant of the positive age effects on FOB prices but also that learning takes considerably long time. Policy implications are discussed.

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Bibliographic Reference

Macchiavello, R. 2010. 'Development Uncorked: Reputation Acquisition in the New Market for Chilean Wines in the UK'. London, Centre for Economic Policy Research.