We have modeled vertical coordination in a cobweb economy in order to forecast economic agents’ decisions along processing chains when they transfer product and negotiate volumes and prices.The model is applied to the Champagne industry. Grape producers and wine makers coordinate grape production and trade by forming expectations about final consumption, price and stock risks. The coordination mechanisms involve long feedback due to the three year wine process. A nonlinear and dynamic system dynamics model is used to simulate short and long term production of Champagne with lagged supply adjustments. Simulation results are crucial for stakeholders since the area under Champagne protected designation of origin(PDO) has reached its legal size limit.
DECLERCK, F. and CLOUTIER, L.M. (2006). Vertical Coordination Mechanisms in a Cobweb Economy: A System Dynamics Model of the Champagne Industry. In: Proceedings of the 3rd International Wine Business & Marketing Conference. Academy of Wine Business Research (AWBR).