MRSS Seminar: Selling Now or Later: Marketing Strategy for Wine as a Collectible

Certain types of wine have a unique property in that they appreciate in value over time (therefore can be labelled as a collectable), which makes it profitable to store and to sell such wine for a higher price at a later date. The decision to store wine is further complicated by storage capacity, as well as multiple competitors in the aged wine business. In this paper, we investigate the optimal storage decision for such wine given product property, storage capacity needs, and the presence of multiple competitors.  We find that the optimal storage quantity increases with the wine’s ability to appreciate in value and decreases with storage cost.  We find that optimal storage quantity of wine with a low appreciation rate is highly sensitive to storage cost while that of wine with a high appreciation rate is highly sensitive to capacity constraint. When there is an active secondary market for aged drinks with other players with their own storage capacity, the optimal configuration depends on their relative competitiveness. More fierce competition in the aged wine market will compel the wine producer to store less wine and sell more to the competitor. In addition, the competition makes the wine maker’s storage quantity capacity to be more sensitive to storage cost. The competitors’ storage capacity helps to compensate the lack of storage capacity of the wine maker and allows the market to store more wine.