The economics of collective reputation: Evidence from the wine industry

Abstract

We use original data regarding the array of Italian winery coalitions (wine denominations) to analyze the economics and determinants of collective reputation. We first run a cross-sectional analysis with 2008 data and the full set of control variables, then move to the dynamics of collective reputation with panel data analysis on a 30-year time span (1978-2008). Group reputation is history-dependent. In particular, past bad collective behavior increases the probability of being stuck in a "bad reputation trap." Minimum quality standards and effective enforcement are fundamental drivers of group reputation. The relationship between group size and collective reputation is non-linear: free entry may not be optimal due to free-riding problems. Finally, institutional signals such as the wine classification system are useful because they can be used by consumers as easily available proxies for information that is much more difficult to acquire.