Counterfeits and fraud

Why fake wine exists

Counterfeiting is an economic activity, just a criminal one. A forger compares the cost of making a fake with the price it might fetch. An empty bottle, a cheaper wine to fill it, a printed label and a cork might cost very little. If the finished bottle passes as a rare old vintage worth thousands of dollars, the potential profit is enormous.

Wine also has an unusual weakness: you cannot fully test it without opening it, and once it is open it cannot be sold. Many famous old bottles are never drunk by their buyers, or are drunk by people who have never tasted the real thing and so cannot tell the difference. That makes fakes much harder to catch than, say, a forged banknote.

Why fakes hurt honest sellers too

In 1970 the economist George Akerlof wrote a famous paper about used cars, called "The Market for Lemons". A lemon is a car with hidden faults. His point was that when buyers cannot tell good cars from bad ones, they will only pay an average price for any car. Owners of good cars then refuse to sell at that price, so more of the cars on offer are lemons, and buyers lower their offers again. In the worst case the market for good cars shrinks away.

Fake wine creates exactly this problem. If buyers suspect that some old bottles of a famous wine are counterfeit, they will pay less for all of them, including the genuine ones. Honest owners with real bottles lose money they did nothing to deserve. Some may decide not to sell at all, which leaves even more of the bottles on offer coming from doubtful sources.

This is why the wine trade invests so much in trust. Auction houses employ specialists to inspect bottles, producers add security features, and buyers pay more for clear provenance. Each of these is a way of letting buyers tell good bottles from bad ones, so that genuine bottles can command a fair price again.

The economic idea at the heart of this is information asymmetry: one side of a deal knows much more than the other. Many scams and many market failures grow from that gap.

Investment scams: the other kind of fraud

A different kind of fraud does not need a single fake bottle. In wine investment scams, a company contacts people, often older savers, and offers them wine "as an investment". The wine may be real but sold at several times its true market price, or it may never have been bought at all. Victims are told their cases are safely stored, receive glossy statements showing rising values, and only discover the truth when they try to sell.

Regulators in several countries have warned about these schemes for years. The warning signs are remarkably consistent:

• An unexpected phone call, email or social-media message offering an "opportunity".
• Promises of high or guaranteed returns. No honest seller can guarantee what a market will do.
• Pressure to decide quickly, such as "this offer closes today".
• Wine you never see, held in a store you cannot check in your own name.
• Prices you cannot compare with independent auction or merchant prices.
• Difficulty getting your money or your wine back when you ask.