Competition and Price Wars in the U.S. Brewing Industry

Abstract

The behavior of the macro or mass-production segment of the U.S. brewing industry appears to be paradoxical. Since the end of Prohibition in 1934, the number of independent brewers has continuously declined while the major national brewers, such as Anheuser-Busch, Miller, and Coors, have gained market share. In spite of this decline in the number of competitors, profits and market power have remained low in brewing. Iwasaki et al. (2008) explain this result by providing evidence that changes in marketing and production technologies favored larger brewers and forced the industry into a war of attrition, in which only a handful of firms could survive. This led to fierce competition, especially from the 1960s through the mid 1980s. Since the late 1990s, the war appears to have subsided. Thus, the purpose of this study is to determine whether price competition diminished after the mid-1990s. We find evidence that competition has diminished but not enough to substantially increase market power. (JEL Classification: D22, L11, L66)

The Pass‐through of Beer Taxes to Prices: Evidence From State and Federal Tax Changes

“…Brewing companies in the United States underwent a “beer war” from the 1960s to the mid‐1980s, which was accentuated by fierce competition in the marketing and advertisement sectors, including the production of new brands and tough price competition. The number of independent macro‐brewers declined from 766 in 1935 to about 20 firms in 2012 (Gokhale and Tremblay ). Iwasaki et al () and Gokhale and Tremblay () both find that the beer industry became more competitive, but still classified as concentrated, as the firms became fiercely competitive within the oligopoly structure from the 1960s to mid‐1980s.…”

“…The number of independent macro‐brewers declined from 766 in 1935 to about 20 firms in 2012 (Gokhale and Tremblay ). Iwasaki et al () and Gokhale and Tremblay () both find that the beer industry became more competitive, but still classified as concentrated, as the firms became fiercely competitive within the oligopoly structure from the 1960s to mid‐1980s. This situation remained constant throughout the 1990s.…”

“…The macro‐brewing sector of the United States beer industry emerged into an oligopolistic structure by 1970. Although the concentration ratio is not the sole determinant of a specific market structure, the four‐firm concentration ratio (CR 4 ) increased from about 44% in 1970 to 92.8% in 2003 (Tremblay et al ; Gokhale and Tremblay ). As reported by Tremblay et al (), CR 4 surpassed 40% in 1968, which is the cut‐off established by Scherer and Ross () and Shepherd () to distinguish a competitive market from an imperfectly competitive one.…”

Early entry, capabilities and shakeout in the US brewing industry

“…However, when the concentration-market power relationship was tested again, using the new empirical industrial organization approach, which is argued to be superior to the SCP approach due to tighter links with theory and a lack of endogeneity issues, the relationship was not significant (Bhuyan, 2014). Gokhale and Tremblay (2012) used two different methods to mitigate endogeneity. They concluded that despite the increase in concentration, market power was low from 1987 to 2008, although it rose a little bit from 1997 to 2008.…”

Visiting an old battleground in empirical industrial organization: SCP versus NEIO

“…We hypothesize that the outcome of this exercise would not depend on which method was used to test for market power. We choose the US brewing industry because there is an ongoing debate over the impact of a rise in concentration in the industry as well as its competitiveness (Gokhale and Tremblay, 2012).…”