Quality management and contractual incompleteness: grape procurement for high-end wines in Argentina

Abstract

Sourcing grapes from independent growers for use in top quality wines sold on the international market is a major organisational challenge for corporate wineries. Our paper adds to the small collection of existing literature addressing these coordination issues in the New World wine sector, by going deeper into the specifics of the contracts. Based on a case-study carried out in the Argentine province of Mendoza, this article presents an in-depth analysis of the technical process, in order to identify the contractual hazards posed by asset specificity, measurement costs, and non-contractible actions. Expanding Transaction Cost Economics to include contract completion and plural governance literature, this paper analyses the contractual and non-contractual mechanisms (price incentives, grower monitoring, allocation of decision rights to the winery, role of backward integration) used to govern such grape transactions. Through our analysis, we were able to arrive at four main conclusions. Firstly, most agree...