DP16784 Price Dispersion in Wines

Author(s): Jean-Marie Cardebat, Olivier Gergaud, Pierre Regibeau, Katharine Rockett
Publication Date: December 2021
Keyword(s): price dispersion, restaurant, spatial competition, Wine
JEL(s): L11, L13, L90
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16784

We investigate price dispersion in restaurant sales of wine. We measure empirically the change in price dispersion as competition varies, finding that price dispersion increases with competition. We then propose a spatial model capturing the unique features of restaurant dining to explain this empirical regularity. The model reveals an indirect effect flowing through the price of food, which is announced and known by customers, to the price of wine, which is only revealed once the customer enters the restaurant and receives the wine list. The results add to the literature on "add ons" and price dispersion in bundled good markets.