Anchored in the past: Persistent price effects of obsolete vineyard ratings in France

- There is relatively little evidence for anchoring in actual markets.
- We test for anchoring on prices set under an obsolete vineyard rating system.
- An IV strategy is used to control for time-varying unobservable factors.
- Results show that current grape and vineyard prices are anchored on past prices.
- The anchor has persistent effects on prices many years after it became obsolete.

Although abundant evidence for anchoring in economic valuations has been produced in experimental settings, there have been relatively few studies testing for anchoring in actual markets. We analyze data on grape and vineyard prices in the Champagne region of France to determine whether current prices are anchored on past prices set under a discontinued price-setting system. The key feature of this system is a vineyard quality rating called the Echelle Des Crus (EDC). The econometric challenge is to separately identify anchoring effects from the effects of relevant information EDC era prices may convey about grape and vineyard quality. Our empirical approach controls for observable attributes of vineyards and time-invariant unobserved determinants of vineyard quality that may be revealed to market participants through EDC era prices. In addition, we use an instrumental variables strategy to mitigate confounding influences of time-varying unobservables. We find strong evidence that anchoring has large effects on prices for grapes and vineyards. We also examine whether the anchoring effect is diminishing over time as market participants come to rely more on objective information to determine prices. We find, instead, a persistent effect of the EDC many years after it became obsolete.