Written by Oligopoly - : a market situation in which each of a few producers affects but does not control the market.
Lately we’ve been hearing a lot about the prices of beer going up. I’ve even seen a report on the local 6 O’Clock news that a 12 pack might go up a whole dollar!
This is important news, but why? It seems the price of just about everything is always going up, so what’s the big deal when beer goes up a bit? Well, the problem seems to be more than just the usual increase of prices based on the higher cost of hops or other things used to make beer.
According to this Times article about 80% of the American beer market is controlled by In-Bev/Anheuser-Busch, and MillerCoors, which is a joint venture between SABMiller and Molson-Coors.
Not so much a big deal unless they raise their prices at the same time during a period of reduced demand for their product. Is the price hike a legitimate way for these giant brewers to make up lost revenue, or is it something more? When so few players control so much of the market, like 80%, what’s stopping them from jacking up the prices even more? Is there coordination, or is it driven by the market? Hmmmm.
Still, this is America. I think that people will see that when the price of a 6 pack of Coors Lite costs the same as something produced by a local craft-brewer, perhaps more people will will be inclined to try something new. If people switch, and the big brewers then need to reduce their prices to make up for lost market share, will people switch back? I’m thinking no.
Interestingly eno
ugh, there are more breweries in the USA now than any time since 1909, and the craft brewing industry continues to see increases in sales, even in these tough times!
Is big-beer setting itself up for failure by jacking up prices, or are they still too dominant for it to really matter?
Do the math. If there are roughly 1500 breweries in the USA, that means that InBev and Molson-Coors have an 80% share and 1498 other breweries have that 20% slice of the pie. Still, perhaps this is when that slice of the pie grows?
Paul Gatza, Director of the Brewers Association said “At a time when many of the giant beer brands are declining, small and independent craft brewers are organically growing their share and slowly gaining shelf and restaurant menu space one glass of craft beer at a time.”
So what do you think? If there is an Oligopoly worthy of Government anti-trust scrutiny? Do you think the big dogs are setting themselves up for further losses by raising prices at the same time that craft-brew sales are increasing? Would a dollar price difference between two beers make a difference for you? What’s the meaning of life?
GREAT article Scott. I love reading stuff like this. I am worried that the price of craft beer could go up proportionately to the big boys’ stuff. We saw this with the car industry. Chrysler began using cheap parts in order to produce cheap cars. They began to raise their prices to afford better quality parts. Their cheap parts suppliers increased their costs, and thus we got a more expensive cheap car.
If the suppliers of malted barley raise their costs across the board, it stands to reason that the price of our cherished craft beer could see price increases.
I’m not a economists (although I have been reading extensively on the subject lately, namely the Austrian school of economics) so I could be wrong…but it does seem plausible.
.-= nate´s last blog ..Hitachino Nest XH (Matured in Sake Casks) =-.
I think if I’m not mistaken between InBev AB and MillerCoors they make up 95-98% of the beer sales in America. I got the figure from the Beer Wars DVD and was shocked that it was that high. I believe they said Dogfish Head has a hold of something like .002% in the market. Insanity as they are one of the top craft brewers in the country.
.-= Mike´s last blog ..Yuengling Black & Tan =-.
Wow. Not sure where the Times got their numbers or where the Beer Wars people got theirs but its still a huge percentage. If you think about it, Boston Brewing (Sam Adams) is comparatively huge (many even stopped referring to them as ‘craft’ brewers) and they are in that little slice of the pie as well.
It might technically be an oligopoly, especially with AB merged with InBev now, but I don’t think it will matter much in terms of monopolistic pricing. Much of their market buys beer because it is cheap. If beer gets too expensive then their consumers start switching to other things more, like liquor. So a beer oligopoly wouldn’t have much pricing power since there are so many alternatives.
The biggest thing we have to worry about causing increased beer prices is actually taxes. There’s a proposal in Congress now to increase the federal excise tax on beer.
http://beeradvocate.com/news/2084374
http://www.rollbackthebeertax.com/
I can see people buying their product because its cheap(er), but you think people will switch to liquor instead of another beer? I think if craft beer can maintain its price somehow they might get a little more of the pie. I think they can gain market share from big-beer.
The taxes, well sure that sucks as the power to tax is the power to destroy. Still, the tax would be across the board rising prices on all beers, not just the big brewers. I think in that situation, people will buy less beer, or as you suggest switch their drink of preference.
I guess we’ll see how it all shakes out in the near future! Thanks for the comments everybody!