Competition Versus Cooperation: Supply Chain Organization and the Construction of Luxury in French and Italian Wine Markets

There is an assumption in contemporary liberal economics that innovation arises from less regulated, more competitive market spaces. Can value-creation be compatible with high levels of market protection? In this paper, I contend that value creation is not only compatible with market protection and strong political institutions, but protective institutions can enhance value creation and support differentiated production. Through a comparative analysis of the French and Italian wine markets, I demonstrate how political organization and subsequent national regulation can lead to a redistribution of power in the supply chain. French grape growers have constructed deeper levels of negotiated compromise than their Italian counterparts, both with other supply chain actors and with the Ministry of Agriculture. The higher levels of vertical supply chain cooperation and national protection were critical in creating shared geographic brands, maintaining price protection, and constructing the perception of a differentiated product. I contrast French supply chain cooperation with the atomized, brand-driven Italian supply chain structure. In these more competitive markets, the majority of actors respond to demand instead of creating it; as a result they find themselves in a more crowded market space.