No Lemons in the Wine Industry

In Aplia, we recently learned about asymmetric information.  One of the examples of this was the Lemons Model.  This model suggests that in a situation in which the seller of a good knows more about the good than the buyer, the buyer will only be willing to buy at a lower price because of the uncertainty involved in the transaction.  A buyer does not want to spend $10,000 on a $7,000 vehicle so the buyer is only willing to pay $7,000.  Because of this, the seller is only willing to sell vehicles worth less than $7,000.  Ultimately, this situation results in an extreme shortage of high quality goods available for sale because no one will sell them at a loss.  This article from the Huffington Post has all the makings of a lemons situation, but none of the effects.

A high price bottle of wine is a considered a sign of wealth and class.  Because of this the best wine is sold at auction for thousands of dollars per bottle for those that consider themselves the ultimate connoisseurs or those who just want to impress.  Unfortunately, it has recently come to light that counterfeiting is a serious problem in this industry.  It has been particularly bad in Asia where many are not experts on wine, but have the money to buy the best.  Although the problem has only been publicized for a short time, those with more experience know it has been going on for quite a while.

Under these circumstances, one would expect the price of a bottle of wine to drop.  Buyers should behave more cautiously and sellers should respond by offering less high quality wine.  Interestingly, the opposite has occurred.  Wine sellers/producers have continued to sell as they always have and prices have continued to rise.  Why is this?  I see two possibilities.  The article mentions that those who discover they have been deceived into paying high sums for worthless fakes are ashamed to admit it.  If no one ever admits they have purchased a lemon, then it is as if it doesn't happen.  The other possibility is that demand for these wines is so high in proportion to supply, that it will take much more to drag prices down.  This is likely because older wines are often considered the best.  The idea of high demand and low supply also fits with common economic theory that large deficits will often result in black markets.  Counterfeiting is not exactly a black market, but it fills the same roll.