Selling now or later : commercial and storage strategy for wine

Abstract

Many types of wine have a unique property in that their quality improves over time, fostering winemakers to store and sell wine later as aged wine. The storage decision is further determined by available storage capacity, as well as multiple players in the aged-wine market. In this paper, we investigate the relationship between the mentioned wine property and storage characteristics, as well as the impact of multiple players in the aged-wine market. We find that optimal storage quantity increases with wines’ quality improvement and decreases with storage costs. We find that wines with low quality improvement are highly sensitive to storage costs, while wines with high quality improvement are highly sensitive to storage capacity constraints. When there is an active secondary market for aged wine with other players with their own storage capacities, the optimal market split will depend on their relative competitiveness. As these third-party players become more competitive, a winemaker will choose to store less wine and sell more of the current vintage wine to customers and competitors. In addition, the presence of this type of competition makes the storage quantity of a winemaker more sensitive to storage costs. The storage capacity of competitors helps mitigate the negative effects of the winemaker's storage constraints, leading to a win-win situation. We hope our model formulation will provide a valuable foundation for subsequent wine research.