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Love or Money? The Effects of Owner Motivation in the California Wine Industry

45 Pages Posted: 29 Oct 1998  

Fiona M. Scott Morton

Yale School of Management; National Bureau of Economic Research (NBER)

Joel M. Podolny

Yale School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: October 1998

Abstract

Many industries are characterized by heterogeneous objectives on the part of firm owners. Owners of private firms, in particular, are likely to maximize utility, rather than profits. In this paper, we model and measure motivations of owners in on particular industry, the California wine industry. In both a formal model and an empirical analysis, we examine the implications of these motivations for market behavior. We find evidence that owners with strong non-financial motivations choose higher prices for their wines, controlling for quality; owners with strong profit-maximizing motives choose lower prices for their wines, controlling for quality. We also find that utility-maximizers are more likely to locate at the higher end of the quality spectrum, whereas profit-maximizers are more likely to locate at the lower end. We explore how the presence of a significant number of utility maximizers within an industry affects the competitive interactions within that industry. We conclude that some winery owners 'consume' features of their product or business as a substitute for profits and, in the process, provide softer price competition for for-profits. Additionally, in aggregate, their preference for quality can prevent entry into the high-quality segment on the part of profit-maximizing firms.

JEL Classification: L21, L22, L66

Suggested Citation

Scott Morton, Fiona M. and Podolny, Joel M., Love or Money? The Effects of Owner Motivation in the California Wine Industry (October 1998). Available at SSRN: https://ssrn.com/abstract=133631 or http://dx.doi.org/10.2139/ssrn.133631

Fiona M. Scott Morton (Contact Author)

Yale School of Management ( email )

New Haven, CT 06520
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joel M. Podolny

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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