People have sometimes (often, maybe) misinterpreted The Wine Trials (and The Wine Trials 2010) as making the claim that no expensive wines are worth the money, or that cheap wine is generally “better” than expensive wine. In fact, I make neither one of those claims in the book.

Rather, my basic points are these:

(1) Evidence has shown that most everyday wine drinkers (not wine professionals) don’t prefer more expensive wines to cheaper wines in blind tastings. This is separate from the question of whether the properties of expensive wines are aesthetically superior in the minds of experts.

(2) Many (but certainly not all) expensive wines, such as the luxury brands from LVMH—which are advertised much like the group’s TAG Heuer watches, De Beers diamonds, Guerlain perfume, or Louis Vuitton handbags—are overpriced because such a large portion of their cost base is spent on marketing. This doesn’t just go for superpremium wines like LVMH’s Château d’Yquem, Krug, and Dom Pérignon; it also goes for brands like Cloudy Bay, a straightforward New Zealand Sauvignon Blanc whose price—without any apparent change in the production method—rose from about $15 per bottle to about $30 per bottle after LVMH acquired the brand in 2003 and began marketing Cloudy Bay as a luxury product.  To me, when the consumer dollar is going more toward advertising than toward materials or production, it’s a paradigm case of overpricing. It bothers me that the mainstream wine media doesn’t take brands to task for this.

(3) There are also wines that are overpriced for reasons other than marketing—reasons like an irrational premium Bordeaux bubble that’s being inflated by indiscriminate demand from rich, unsophisticated consumers in emerging markets like China and Russia. Even if Pétrus spends no money on marketing, $5,000 is an irrational price for a bottle, and this is a demand-side phenomenon.

(4) Then there are the producers who model themselves after Pétrus in an effort to capitalize on that same demand-side phenomenon. These producers make “high-end” wine (with the characteristics typically associated with the 95-and-higher-point wines in wine magazines, e.g. aging in new French oak, high alcohol, extreme concentration) and price it as such. Here, there aren’t necessarily the extreme marketing expenditures of LVMH; rather, there’s simply a price-signalling play: the hope that positioning the product at the top end of the market will speak for itself, and that consumers in search of a luxury good will buy into that notion. In this case, the consumer dollar isn’t paying for lots of advertising and marketing—it’s just sustaining unconscionably high profit margins for the producer.

What situations (2), (3), and (4) have in common is that the cost of production of each of these premium wines is virtually unrelated to the street price.

One might divide wine pricing theory into two rough schools of thought. There is the camp that believes wine should be priced from a supply-side/cost-plus perspective–you take the cost of production of the wine, you add reasonable costs and a modest profit for the producer, you factor in markups for distribution and retail, and you arrive at more or less what the wine should cost. The other camp believes that wine should be priced from a demand-side perspective–that a wine is worth whatever the market is willing to pay for it.

The reason I’m in the first camp, and not the second, is that I don’t subscribe to the neoclassical model of consumer rationality upon which the demand-side pricing theory is built, a counterfactual universe of stingily hypersensitive, quality-sniffing consumers. My sense is that, especially when it comes to hazy markets like wine, real human beings—within certain constraints—generally anchor themselves to market prices that are imposed upon them, and generally pay for things what they’re told those things are worth.

One attempt to justify superpremium wines with modest costs of production is an opportunity-cost-of-land argument—that wine in the Champagne appellation is so expensive that the opportunity cost of that land can justify higher prices. I’m unsympathetic to that argument, because real estate prices track market wine prices, so the price of land is not an independent factor.

So when are premium prices justified in my camp?

When the cost of production is high. The fact that Matthews and Briand mention 1er Cru Burgundy and German whites as examples of expensive wines worth the money suggests that they might be in my camp too, because these are particular examples of wine regions in which grapes are often harvested from small plots with very low yields. In the case of German TBA, for instance, the harvesting is often done on steeply terraced slopes that are extremely difficult to work. Ice wines and botrytized wines—the priciest of German whites—are indisputably more difficult and expensive to produce than almost any other type of wine.

In short, while spending $50 or $75 or even $100 on a good Sauternes, TBA, or top red Burgundy might not always make economic sense for the buyer—particularly if it’s a buyer without much experience in wine—it’s at least justifiable from a supply-side pricing perspective. The $150 you’ll pay for a bottle of Opus One or Krug, meanwhile—never mind the $5,000 you’ll pay for a bottle of 2005 Pétrus—has little to do with the cost of production.

This from the abstract:

“In markets for experience goods, publications exist to help consumers decide which products to purchase. However, in most cases these publications accept advertising from the very firms whose products they review, raising the possibility that they bias product reviews to favor advertisers…Although the average Wine Spectator ratings earned by advertisers and non-advertisers are similar, I find that advertisers earn just less than one point higher Wine Spectator ratings than non-advertisers when I use Wine Advocate ratings to adjust for differences in quality.”

These are wine ratings, not the restaurant Awards of Excellence, which I’ve written about in the past; the applicants for those awards are advertisers by definition (having submitted a $250 fee to be considered).

Karl Storchmann has also posted an interesting blog entry about Reuter’s paper on the AAWE website.

Reuter later retreats to a statement that he “finds little consistent evidence of bias…at worst, the tests for biased ratings suggest that Wine Spectator rates wines from advertisers almost one point higher than wines from non-advertisers. However, selective retastings can explain at most half of this bias and then only within the set of U.S. wines rated by both Wine Spectator and Wine Advocate. Given Wine Spectator’s claim that it rates wines blind, the remaining difference in ratings may simply reflect consistent differences in how the two publications rate quality, which leads to predictable differences in advertising. This interpretation is consistent with the fact that tests for biased awards provide no additional evidence of bias. Therefore, despite the fact that Wine Spectator is dependent on advertising revenue, the long-run value of producing credible reviews appears to minimize bias.”

I think this conclusion is softer than it need be. Even if selective retastings explain only half of the one-point bias, that’s still pretty damning; it means that if you advertise in Wine Spectator, you might well get the benefit of a selective retasting that gets you, on average, an additional half-point. Translation: advertising influences ratings.

With respect to the other half-point, if there are indeed “consistent differences in how the two publications rate quality, which leads to predictable differences in advertising,” then you should try leafing through a copy of Wine Spectator and seeing if you’d trust critics who favor the types of wines that tend to advertise in the magazine. I think the roster of advertisers speaks for itself.

The more important issue, perhaps—especially if you’re a small wine producer—is how difficult it is to get magazines like Wine Spectator to even review your wines at all. And this is where, anecdotally, bias might play an even larger role. “Unsolicited samples,” states the Wine Spectator website, “may not be tasted.” Advertise in the magazine, and that problem seems to go away.

And then there’s the matter of the selection of a wine (Columbia Crest Cabernet Sauvignon Reserve) from a Wine Spectator advertiser (Chateau Ste. Michelle) as this year’s Wine Spectator wine of the year.

Although proving bias in every such case is a complicated, difficult point, the obvious conclusion of all such research is the simplest:

We should be skeptical of criticism whose publication is financially supported by the producers of the products being criticized.

Wine critics should not accept advertisements from wineries.

Period.

Ethics scandals are politico porn. They’re also fertile ground for undeserved scapegoating. But there’s one category in which, across the board, there’s not nearly enough public stoning going on: the world of information intermediaries. On the government side, that means regulatory agencies; in the private sector, it’s the critics, the expert witnesses in capitalism’s de facto justice system.

Information intermediaries, we’re to understand, are society’s check against puffery. They make careers of trustworthiness and accountability. In society’s service, they apply rigor to the claims of corporations and analyze their standards. For this hard work, they’re rewarded by the marketplace and by the United States—sometimes handsomely, sometimes not.

Two bits of recent news bring about two otherwise disparate intermediaries, both preeminent in their niches—Robert Parker’s Wine Advocate, the publication whose critical appraisals are one of the central determinants of a wine’s success or failure on the marketplace, and the Federal Aviation Administration, the agency whose critical appraisals are the primary safety check against America’s airlines—systematically abusing that authority.

Jay Miller: Disfrutando?

Parker’s is one of the few wine publications that don’t accept advertising, for which he deserves praise. And it’s certainly acceptable to take free samples of wine from producers—that’s often the only way to taste new releases before they’ve gone to market. But the recent transgressions of Jay Miller, Robert Parker’s right-hand man, are spectacular indeed. In another classic case of the traditional print media jumping on the bandwagon of a topic that had been exposed quite a bit earlier by an incisive blogger—in this case, Tyler Colman, who goes by “Dr. Vino”—Miller’s series of all-expenses-paid vacation/junkets, financed by wine producers, have finally been reported by the mainstream media in a recent Wall Street Journal article.

Some of rumors about Miller’s behavior in Argentina go quite a bit further in scandalousness than the mere acceptance of free hotels, food, and drinks. But what’s crystal clear, as reported in the Journal and, previously, by Colman—and admitted by Parker—is that the writers of Parker’s Wine Advocate accept lavish free meals from, and are flown around on weeks-long junkets by, the same wine producers whose wines they’re supposed to be critically reviewing—in Argentina and elsewhere.

Parker doesn’t just present himself as a wine writer, and he doesn’t just present Wine Advocate as a wine magazine. No, these are “consumer advocates”: in Parker’s new statement of ethical standards, which was published on eRobertParker.com after the scandal broke, he writes: “I…remain today…significantly influenced by the independent philosophy of consumer advocate Ralph Nader.” Mr. Miller’s only job is to independently criticize wines and assign numerical ratings to those wines in service to, and he is engaged in the systematic, ongoing practice of being taken on vacation by those wines’ producers.

Miller has apologized, and Parker has tried to explain himself, but Parker’s actions (or lack thereof) speak more loudly than his rambling statements on bulletin boards. If it’s even true that Parker didn’t know about Miller’s junkets beforehand (which is extremely unlikely), the fact that Parker didn’t fire Miller when he found out is a loud, clear statement that what he did really wasn’t that bad. In fact, it’s endorsed even in the new code of ethical standards. Incredibly, rather than rejecting Miller’s trips, that statement specifically renders them acceptable:

I…expect [the Wine Advocate critics], as I have done for 30+ years, not to solicit or accept free hotel accommodations or hospitality not directly related to their professional endeavors.

Not directly related to their professional endeavors? Of course a free tasting junket would be related to their professional endeavors. That’s exactly the problem!

Parker finishes his exhausting essay with a poetic flourish: “Wine is, in the final analysis, a beverage of pleasure, and intelligent wine criticism should be a blend of both hedonistic and analytical schools of thought—to the exclusion of neither.” At least the record shows that he’s got the hedonistic part down, anyway.

Meanwhile, the New York Times reports that over at the F.A.A., the airlines being rigorously scrutinized for adherence to strict safety standards—again, the organization’s primary responsibility—are referred to within the agency as “customers”:

In 2008, two F.A.A. inspectors assigned to Southwest Airlines testified before Congress that their managers had let Southwest fly its Boeing 737s without inspections for cracks that the safety agency required. Office managers referred to the airline as the regulatory agency’s “customer.” Top F.A.A. officials eventually conceded that the inspectors were right and the middle managers were wrong.

The Times’ investigative report tells the chilling story of an inspector named Christopher Monteleon, who voiced serious concerns about the incompetence and low safety standards of the pilots of Colgan Air a year before one of the airline’s Bombardier Dash 8-400 turboprop planes crashed in Buffalo, apparently due to pilot error. Apparently, Monteleon’s warnings were not just ignored but actually punished by his superiors:

Three times, he said, the pilots flew the airplane faster than the manufacturer’s specifications allowed, but they initially refused to report this and have the plane inspected for damage…[T]hey tried three approaches to the airport in Charleston, W. Va., and “botched” all of them, failing to get the plane at an appropriate altitude, on the right path and at the right speed for landing. “They got confused,” Mr. Monteleon said…But when he reported problems to his F.A.A. superiors, he was suspended from important portions of his job overseeing Colgan’s acquisition of the Dash 8 and given a desk job, he said…Colgan crews were flying fatigued, Mr. Monteleon said, and were not fully focused on the tasks in front of them, two factors apparently in play in the Buffalo crash. All 49 people on board the flight, which took off from Newark, were killed, along with one man on the ground. Mr. Monteleon said his supervisors were too “cozy” with Colgan, and eager to help it keep its schedule…In one memo retained by Mr. Monteleon, his manager indicates that he was reassigned because of his “conduct during a work-related duty” and because “the matter also required management to immediately respond to the operator’s scheduling needs.” The operator was Colgan.

In aviation, as in wine, our intermediaries have failed in their duty to their real customers: the readers, the consumers, the citizens. And unlike what happens when ethics scandals directly involve politicians, neither Robert Parker nor the F.A.A. is likely to be voted out of power anytime soon.