“Red Nosed Taster” writes: Tasting expensive but not so good wine on my trip to the wine country last weekend made me think… How do they price wines anyway? A recent study showed that in blind tastings, cheaper wines consistently do better than their more expensive brethren. I was hoping you could elaborate on this mysterious world in your blog.

Like any product, wine prices are determined by myriad inputs. It starts with the type of grapes used, where the grapes are grown, and what the yield of those grape vines are. (Grapes pruned down to two tons per acre are more expensive than those pruned to five tons per acre.) Then there’s who’s making the wine and how they make it. Everything from the type of barrels used to age the wine to whether cork or a screwcap is used to close up the bottle plays into it.

But all of that is academic. Of course, the real price of a bottle of wine ultimately comes down to what the market will bear. Wine pricing is one of the truer examples of pure supply and demand pricing you’ll find in economics. Because there’s a finite supply of any given wine in a year, and a new, but different, supply the following year, you’ll almost always see prices change for a wine from one year to the next as producers try to capture every last dollar for a given bottle of wine. If not all the wine sells one year, the price will go down or stay the same. If it sells out, watch it start to climb. I was drinking Caymus Cabernet for $20 a bottle in 1995. The wine became a big hit right about that time, and the 2005 vintage goes for about $70 today. That’s just simple economics: Caymus knows it can sell out even at 3 1/2 times the price. If it doesn’t it just knocks the price down a few bucks for 2006 and people think they’re getting a bargain.

For some real fun try tracking the price of a given bottle of wine on the secondary market. Auction prices fluctuate up and down just like the stock market. It’s fascinating stuff.

But to your other point, does a high price mean you’re getting a quality wine? Studies are studies, so I decided to look into my archives of wine ratings to see if there were any patterns in my own data. Below you’ll find the chart of all the ratings of wines that I’ve done where I had a reliable retail price available for the wine (which excluded a lot of older bottles, auction tastings, and restaurant wines). I ended up with about 1,800 data points. Because letter grades don’t plot very well, I converted everything to the widely-used 50-100 point scale. A+ got 100. F got 50.

The results are interesting, I think. There’s not a lot of order to the data for most wines; for wines under about $50, the ratings are all over the map. Things get more interesting when prices start to climb. I don’t have any ratings below a B- for a wine over about $50, with one exception. And as prices tend higher, the ratings tend to go up as well. That said, only one of my 100-point/A+ wines cost more than $50, and some cost in the $20s.

Overall, the trend line points vaguely upward, but even the cheapest wines merit an average rating of a solid B. Also interesting: Virtually all wines costing more than $80 fell below the expected trendline, so maybe the big takeaway is that yes, you can buy quality, but with each extra dollar you spend, you get only a marginally better wine.*

(click for full-size version)

* Fair warning: I’m not an economist by trade, and all data is based on my own tasting reports, which may very well be skewed, particularly since very few of my ratings are based on blind tastings. Ultimately it’s just one man’s data, but I have tried to be as honest and accurate as possible.

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