The South Australian Wine Grape Market: An Analysis Using Experimental Economics Techniques

A series of six laboratory experiments was conducted in 1986 and 1987 to examine the impact of minimum prices on the market for wine grapes, similar to what has existed in South Australia. In the experiments, four of the seven subjects designated as “grape‐growers” were members of winery co‐operatives, whose methood of payment to their members differs from that of commercial wineries. Three subjects were designated as “wineries”. Three market structures were examined: minimum prices, and two on‐minimum price regimens, one with no information to buyers and sellers about market prices for grapes, and the other with prices being posted as trading within the session proceeded. The results with respect to minimum prices were predictable enough: more grapes were left unsold to “rot on the vine”, fewer grapes were sold to wineries, and the quantity delivered to co‐operatives was increased. Grower profits in aggregate were not significantly different with a minimum price, due to more grapes being left unsold. Buyers′ profits were much lower with minimum prices. Because well over half of the crop was traded before prices were posted in the sessions with the information about prices, the effect of providing information was not in general significant. It is possible that a different experimental design would have led to significant improvements in efficiency and profits using additional information.