The Law of One Price? Price Dispersion on the Auction Market for Fine Wine

This paper examines the strong version of the law of one price (LOOP) on the auction market for fine wine. We draw on worldwide auction prices from eight auction houses, 1 covering the time period from 2000 to 2012. Employing a hedonic approach, we find significant price premiums in particular in Hong Kong and between auction companies (independent of their locations). The price premiums by far exceed the expected transaction costs, casting doubt on the existence of the strong version of LOOP in the fine wine market. Our results suggest that heterogeneity in buyer preferences may crucially contribute to the observed price dispersion. In particular, although wines suspected of being counterfeits are sold at discounts in Western markets, they fetch price premiums in Hong Kong.