I’m not drinking any gosh darned merlot!

by Chris Auld

The movie Sideways impugned merlot and heaped praise on pinot noir. Did Sideways cause changes in market outcomes for these varietals?

In The Sideways Effect: A test of changes in demand for merlot and pinot noir wines Cuellar et al provide some econometric evidence. They look for post-Sideways price and quantity changes in merlot and pinot noir relative to the “control” varietal cabernet sauvignon using scan data from the U.S.

First consider quantities:

“Promoted” here means the product was advertised. The red vertical line is at 2004, when Sideways was released. Quantity of pinot increases markedly in 2005 relative to merlot or cab. The story for price is less clear:

Promoted pinots increase in price a bit over 10% in 2000, and then trend up another few percentage points post 2004. Merlot prices, promoted or not, fall relative to the other varietals over this period, but the decline appears to begin in 2002.

These results are what we might expect if it’s not very hard to switch production from one varietal to another, and the demand shock manifests as quantity changes rather than prices changes. However, since current prices depend on last (and previous) years’ production and planting, it is somewhat surprising that we don’t see a relative price spike for pinot in 2004. The authors present some regression analysis further detailing these results (which is a little strange in my opinion—instead of a difference in difference approach, they assume a quadratic time trend, then look for a structural break in the linear component only in 2004).