New Year, Old Tradition: the history and economics of Champagne

The holidays aren’t over yet! New Years Eve is just around the corner which means more consumer spending on… you guessed it, Champagne!

For New Years celebrations alone more than 39.8 million bottles of Champagne will be purchased in the U.S. But why champagne? How has that become our nation’s and most of the worlds drink of choice for celebration?

Champagne is a symbol of luxury in our world today and as we know, luxury goods as opposed to normal goods do not behave the same as far as consumption goes. Some Champagne may even be considered a Veblen good (a good who’s demand increases with cost), especially around the holidays. But the high status of champagne wasn’t always the case.

Champagne is originally a French wine. It was extremely popular until Fagon, King Louis XIV’s physician, diagnosed that the regent’s favorite wines from Champagne were the cause of his nervousness and gout. This was the first of many economic storms that the champagne industry has suffered in history.

Champagne became and industry in the 19th century but peaked in the 1990’s after it became a world wide commodity. Soon after, however, two events happened that changed the course of the industry. The first was a disease in the vineyards. Grapes were reluctant to grow and there was a shortage of the most important part of this good. The costs to replant and care for new vines was a huge blow to the champagne industry. Not as big as the next hit. World War I. During the first world war, resources were spent mostly on… war. This cut the demand for Champagne in the early 1900’s as well as destroying vineyards as they had become battle fields.

After trying to recover the industry following the war, there was much needed regulation and enforcement for this once popular industry on the rise again. So, “in 1935 the INAO—the Institut National des Appellations d’Origine (now the Institut National de l’Origine et de la Qualite)—the government agency entrusted with setting and enforcing the rules of the game for Champagne” to enforce intellectual property as well as other rights and titles for the industry’s powerhouse brands that we know and love today.

Cheers to the New Year!

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