The Commons We Forgot We Shared

Brand equity is the rarest of collective assets—and one of the easiest to spend without noticing

This interlude in the series of essays about the Napa Valley steps back from the specifics—too many wineries, too many scores, too many tasting rooms, too many similar claims to the same elevated ground—to examine the mechanism that allowed all of it to happen at once. The phenomenon has an old name. It is older than wine, older than appellations, older than any of the institutions that govern modern luxury. It is the tragedy of the commons.

Garrett Hardin gave the tragedy of the commons its modern economic expression in his famous 1968 Science essay, ‘The Tragedy of the Commons.’ The image at the center of his essay was deliberately old-fashioned: a meadow held in common by a small group of herdsmen, each of whom may add cattle to his herd. For a long time, the meadow can absorb the additional animals. The grass replenishes. The herdsmen prosper.

Each new cow added to the commons brings full economic gain to the herdsman who adds it, while the costs—a thinning of the grass, a slight degradation of the pasture—are spread invisibly across everyone who shares the field.

The arithmetic, for each individual herdsman, is irresistible. The gain is captured. The cost is shared. And so each one rationally does the same thing. The herd grows. The pasture is grazed harder than it can sustain. By the time the damage becomes visible, the damage is already done.

Hardin was writing about ecological resources, but the structure of the problem turns out to be more general than the meadow. It appears wherever a finite shared resource can be drawn upon by participants who capture the benefit privately and pay only a small share of the cost. It explains overfishing. It explains atmospheric pollution. It appears in any system where reputation is collective and behavior is individual.

It also explains what has happened to Napa Valley.

The Brand as a Pasture

The pasture at the center of Napa is not made of grass. It is made of meaning.

For roughly half a century, the valley accumulated something that cannot be planted and cannot be bought outright: a luxury appellation brand whose authority extended beyond any individual estate. The words Napa Valley on a bottle came to stand for a place, a style, a level of seriousness, a confidence in the consumer that this wine had earned the right to ask a meaningful price. By the early 2000s, that brand had become a remarkable asset—not owned by any single winery, but held in common by every producer entitled to use the name.

And here is where the trouble begins.

A new winery does not need to construct its prestige from scratch. It can borrow. From the day the doors open, the words on the label and the appellation on the back of the bottle carry the cumulative weight of everything the valley has earned. The new entrant pays for the land, the winery, the consulting, the architecture, the labor, and the regulatory burden. It does not pay for the brand.

That is the first half of the commons problem.

The second half is that every new entrant, by the simple act of producing one more $150 Napa Cabernet of broadly similar style and broadly similar story, draws slightly against the pasture. A single new producer is invisible. Ten are barely noticeable. A hundred begin to be felt. Five hundred change the climate of the place itself.

Each new claimant captures the full benefit of attaching itself to Napa Valley. The cost—the gradual thinning of distinction, the gradual exhaustion of meaning, the gradual erosion of the very authority the new entrant came to rent—is spread invisibly across everyone who shares the field. For each individual entrant, the logic is irresistible.

It is also collectively ruinous.

The Voices That Were Supposed to Multiply

There is a counter-argument worth taking seriously, because it was widely believed in Napa for a long time, and because it is not entirely wrong.

The argument is this: more wineries do not only consume brand equity; they also produce it. Every additional producer is another voice in the market, another label in a sommelier’s hand, another story in a magazine, another tasting-room door for a visitor to walk through. The cumulative effect of all those voices is more presence for Napa Valley in the broader conversation about wine. A region with five hundred producers is, in some sense, more visible than a region with one hundred. New entrants would not deplete the brand. They would build it.

That logic is real. But it understates two things, and once both are accounted for, the conclusion reverses.

The first is that the marginal contribution of each new producer to total brand recognition is very small, and it shrinks as the field grows. The hundredth winery in Napa added something detectable to the valley’s overall voice. The four-hundredth added almost nothing the consumer could notice—it appears in a market already saturated with similar labels, in a press already covering the region heavily, in a conversation in which the difficulty is not getting the words Napa Valley into the consumer’s mind but distinguishing one Napa Cabernet from another.

The second is that the marginal cost in dilution is not similarly small. Each broadly indistinguishable new entrant does not just fail to differentiate itself. It actively narrows the range of what Napa Valley is taken to mean. The story converges. The vocabulary converges. The price points converge. The hundredth winery telling a story about estate-grown, sustainably farmed, hand-crafted small-lot Cabernet was distinctive. The four-hundredth is a redundancy.

In aggregate, more voices have added some increment of total recognition. But that increment has been more than offset, several times over, by what the same voices have collectively done to the meaning of the recognition itself. A region can become louder even as it becomes harder to read. Napa has become both.

The League Without a Commissioner

The mechanism is most easily seen through the baseball analogy developed earlier in this series. A league of one hundred franchises, founded on the premise of protected scarcity, expands to five hundred franchises competing for the same fans in the same markets. Each individual franchise captures the benefit of belonging to a famous league. Each pays only a small share of the cost of crowding the league past the point at which the franchise structure can carry the meaning it once did.

No commissioner of baseball would have permitted that expansion. The job of a commissioner is precisely to manage scarcity, not to ignore it. But the league in question had no commissioner. There were only individual owners, each making a rational decision to enter, each paying only the smallest share of the cost of diluting the very thing they had paid to join.

What looked like growth was the commons being grazed.

Tiffany on the Concourse

The closest commercial analogues are not in agriculture or in wine. They are in the broader history of luxury, in cases where firms drew down brand equity faster than they replenished it.

Photo by tommao wang on Unsplash

For most of its history, Tiffany was a name that did not need to be explained. The store on Fifth Avenue, the blue box, the engagement ring—the brand had spent more than a century building one of the most resilient pieces of cultural shorthand in American commerce. The blue box was the asset. Everything inside it was, in a sense, a use of the asset.

In the 1990s and 2000s, Tiffany made a series of choices that, individually, looked like ordinary growth strategy. It introduced silver jewelry at far lower price points. It opened stores in shopping malls. It marketed accessibly priced charm bracelets and heart tags to teenagers and young adults. The famous box began appearing in suburban food courts and at high-school graduations.

Each individual decision was defensible. Each one captured incremental revenue. Each one drew, very slightly, against the meaning of the box. By the mid-2000s, the same blue rectangle that had once signaled a marriage proposal also signaled a hundred-dollar trinket purchased on a lunch break. The firm had not destroyed the brand. It had merely begun to spend it faster than it was being replenished.

What matters about the Tiffany case is that the dilution could continue for years before it appeared anywhere in the firm’s accounting. Brand equity is not a line item. No quarterly report flags it. The firm could grow revenue and post strong results while quietly using up the very asset that had made the revenue possible. The damage shows up only later—when the high-end pieces stop moving, when the box loses its signal value, when the firm discovers it must spend years reversing what once happened almost effortlessly.

The Crocodile in the Discount Bin

René Lacoste, a world-class tennis player, attached an embroidered crocodile to a piqué cotton shirt in 1933 and created one of the most recognizable garments of the twentieth century. For several decades, the crocodile was an unambiguous mark of a certain kind of refinement: athletic, European, expensive, restrained.

Photo by Adobe Stock

Through the 1970s and 1980s, particularly in the American market, the licensing was loosened. The crocodile began to appear on goods that had nothing to do with tennis and very little to do with refinement—on towels, on luggage, on cheaply made shirts that bore little resemblance to the original. By the late 1980s, the crocodile had become the property of nostalgia and parody. The brand equity accumulated across half a century had been substantially exhausted in roughly fifteen years.

It took a deliberate decision by the family in the early 1990s to buy back rights, restrict distribution, raise quality, and rebuild the brand across the next two decades. Lacoste recovered. That recovery is now a case study in business schools, but it is a case study precisely because it was rare and difficult. Most brands drawn down this way do not come back.

What Tiffany and Lacoste have in common is that they were exploited not by enemies but by their own owners. Each firm, when it chose to extend itself into broader distribution, made a commercial decision that captured real revenue. What did not appear on the income statement was the cost of the brand equity being consumed. That cost was real. It was simply paid later, and paid by everyone associated with the brand—including, in the end, the firm itself.

Why Napa is the Harder Case

Set the Tiffany and Lacoste cases beside Napa, and the contrast is instructive—not because Napa is similar, but because it is structurally worse.

When Tiffany extended itself downmarket, there was a Tiffany. There was a corporation, with a chief executive, a board, shareholders, and at least the possibility of an institutional voice that could say, eventually, we have gone too far. The recovery, when it came, came because someone with skin in the game decided to act.

When Lacoste extended itself across half the haberdashery of suburban America, there was a Lacoste. The family had been displaced from operating control, but eventually bought the company back, and at that point the recovery had a single owner who could discipline the system. The retrenchment was painful, but achievable, because the asset had a clear address.

Napa Valley has no such address.

There is no Napa Valley corporation that owns the brand, no chief executive, no board with the authority to limit who may write Napa Valley on a label. There are member organizations, regulatory bodies, and a county government, each performing essential functions. None performs the function of a commissioner. None was built to manage scarcity. None has the authority, or arguably the mandate, to tell a new entrant that the league is full.

Trade associations are built to serve their members, and membership models naturally favor expansion. County governments are built to process permits and refine rules, not to design limits on entry. The instinct of every institutional actor in the valley is to support those already in the field and welcome those who wish to join.

Napa is therefore an unusually pure example of Hardin’s structure. The commons exists. The participants are many. No one has either the authority or the incentive to manage entry. The cost of grazing pressure is, as always, paid by everyone who shares the field, and paid to no one in particular.

The Quiet Arithmetic of Dilution

What makes the commons problem so persistent is that it does not announce itself.

When a new winery comes online in Napa Valley, no one suffers a measurable loss. The existing wineries continue to receive their visitors. The existing producers continue to release their wines at their established prices. The existing collectors continue to receive their allocations. Nothing on any balance sheet changes the day the new entrant opens.

And yet, over time, several quiet things happen.

Photo by Kristina Kutleša on Unsplash

The category becomes harder to remember. With each additional winery telling a broadly similar story—family-owned, estate-grown, sustainably farmed, small-lot, hand-crafted, scored by a handful of wine critics, made by one of fifteen consultants whose work is now associated with hundreds of essentially overlapping wines—the consumer’s capacity to distinguish narrows. The story stops sorting. The score stops sorting. The price stops sorting.

The visitor’s day becomes harder to fill. With each additional tasting room, the time-cost of any single visit rises, because each visit must compete for one of two or three slots in a finite day. The visitor adjusts not by visiting more wineries but by visiting fewer of them, more carefully, and remembering even less of the difference.

The pricing power of the appellation weakens. When too many wines bearing the same luxury brand name occupy the same elevated price tier, the appellation itself stops doing the work it once did.

None of these effects appears anywhere as a loss. There is no line item on any winery’s income statement that reads brand equity drawn down by 0.4 percent this quarter. The cost is real, but it is distributed, and because it is distributed, it does not discipline any individual decision. Each participant remains rational. The collective outcome is destruction.

Seeing the Pasture

Hardin’s original essay was bleaker than the body of work that followed it. Later scholarship, much of it associated with Elinor Ostrom, found that commons do not always collapse. Many are managed well, sometimes for centuries, by the very communities that share them. The condition that distinguishes the healthy commons from the failed one is not the presence of a sovereign owner. It is the presence of shared information.

When the participants in a commons can see what they are collectively doing to the resource—how thin the meadow has become—self-restraint becomes possible. Not guaranteed, but possible. The herdsman who can see that the field is being grazed too hard has at least the option to reconsider. The herdsman who sees only his own herd has no basis for restraint at all.

Most of the time, Napa has lacked that information.

Each winery sees its own conversion rate, its own club retention, its own inventory build, its own tasting-room utilization, its own sales to wholesale customers. Each interprets its own difficulty as a particular story—an off year, a staffing issue, a soft spring. There has been no aggregate picture: no shared sense of how many wineries are trying to occupy the same elevated band, how much tasting capacity sits idle, or how much inventory has accumulated across the system. Producers have had the data to manage their own operations and almost none of the data needed to perceive the state of the pasture they share.

Part of the difficulty is that Napa has also lacked a shared vocabulary for discussing the problem itself. Individual producers experience declining conversion, rising inventory, weaker visitation, or softer pricing as their own particular difficulties rather than as expressions of a broader structural condition. Without a common framework, every setback feels isolated, personal, and temporary.

Information of the right kind would not solve the problem on its own. But shared information and a common framework change the conditions under which collective action becomes possible. Cooperation in a commons becomes thinkable only when the state of the commons is visible. Until then, every participant operates in a privately rational fog—aware of their own results, unaware of the field, and unable to distinguish a personal difficulty from a structural one.

A valley that can see itself clearly is a valley that can, at least in principle, choose to act.

Where That Leaves the Valley

Two pieces of the commons problem are now in view. Neither offers an escape.

The first is structural. A luxury appellation brand built across decades has been drawn down by hundreds of new participants, each with every individual reason to enter and almost no individual reason to restrain themselves. Even Tiffany and Lacoste did not escape the consequences. Each spent years reversing what once happened almost effortlessly.

Napa has no such single owner. It has institutions whose mandates and instincts run in the opposite direction—toward inclusion, growth, and defense of the membership rather than discipline of the field.

The second is informational. Even if Napa had wanted to act collectively, it has lacked the shared picture that would make collective action possible. Producers have seen their own results and read each disappointment as a particular story of their own. The aggregate state of the pasture has not been visible. Without visibility, there has been no basis for restraint.

That is where the valley now stands. The brand has been spent faster than it has been replenished. The institutions did not catch the drawdown. The shared picture did not exist to catch it either. The producers themselves, each pursuing rational ends in good faith, did not see what together they were doing.

The pasture, if given a chance, can recover. What it cannot do is recover while continuing to be overgrazed.

That is the lesson the blue box eventually taught Tiffany, and the lesson the embroidered crocodile taught Lacoste. Napa Valley faces the same lesson now, without the benefit of a single party capable of imposing discipline on the system as a whole.

When internal restraint fails, correction arrives through the market. That is where the final essay begins.

Sunday
Napa Valley’s Reckoning
The Question Is No Longer Whether the Market Will Correct—but How Much Must Change

* * *

Ted Hall is a vintner and rancher at Long Meadow Ranch in Napa Valley. A winemaker for more than 50 years, he was named the 2017 Grower of the Year by the Napa Valley Grapegrowers. A former chairman of Robert Mondavi Corp., he is also a Senior Partner Emeritus at McKinsey & Company and a founder of the McKinsey Global Institute. He writes about economics, incentives, and how complex systems shape real-world outcomes across agriculture, food, wine, and consumer markets.