Love or Money? The Effects of Owner Motivation in the California Wine Industry

Models that assume only consumer tastes determine the characteristics of supply are restrictive; producers can gain utility from aspects of production and pay for deviating from demand by accepting lower financial returns. We model and measure motivations of California winery owners, and analyze their effects on quality and price. We find utility-maximizers are more likely to produce high quality and set higher quality-adjusted prices. Profit-oriented owners are less likely to produce high quality wines. These results suggest that the presence of hobbyists who enjoy producing high quality may lower financial returns in the segment and discourage profit-maximizers from locating there. We thank Ben Polak, John Roberts, Scott Schaefer, lunch participants at Stanford GSB, and seminar participants at Chicago GSB, Cornell University, and the NBER Summer Institute IO Meetings for helpful comments. An anonymous referee and Pierre Regibeau improved the paper considerably. We are also grateful to the winery owners who shared their knowledge and insights with us. Fiona Scott Morton was partially supported by NSF grant SBR-9810178.