Beer Industry Oligopoly

Introduction

The brewing industry was once held to competition among many breweries in small geographic areas. That was almost a century ago. The U.S. brewing industry today is characterized by the dominance of three brewers, which I will talk about in this paper. There are many factors today that make the beer industry an oligopoly. Such factors include various advancements in technology (packaging, shipping and production), takeovers and mergers, economies of scale, barriers to entry, high concentration, and many other factors that I will cover in this paper. Over the course of the paper I will try to define an oligopoly, give a brief history of the brewing industry, and finally to show how the brewing industry today is an oligopoly.

Brewing Oligopoly?

The beer market has turned itself into an oligopoly in the past 100 years. Where there once were hundreds of brewers across America, there now are just a few major players in the industry. But what is an oligopoly? As defined by Ayers & Collinge in the textbook Microeconomics, “an oligopoly is characterized by multiple firms, one or more of which will produce a significant portion of industry output”(microeconomics). Oligopolies exist where a few large firms producing a homogeneous or differentiated product dominate a market. There must be few enough firms so that they are mutually interdependent, which means they must consider rival’s reactions in response to decisions about prices, output, and advertising. The causes of the beer oligopoly are as followed: 1. Economies of scale exist, which indicate that a few large firms would be more efficient that many small ones. 2. A high degree of capital investment required. 3. Other barriers to entry may exist like patents, control of raw materials, large advertising budgets, and traditional brand loyalty.

History of the Beer Industry

The brewing industry in the United States began in 1625 when the first brewery was founded. In the early stages the industry, competition among different breweries only existed in highly secluded small geographic areas. It was not until refrigeration and pasteurization that companies could transport beer across previous geographic limits and begin to grow into the industry it is today. After prohibition there was a sharp decline in the number of brewing companies. Almost 90% of the brewing companies from 1947 to 1995 went ...

... middle of paper ...

... 70% of their volume produced outside of their home country. Imports pose a threat to the market share that companies like Anheuser-Busch, Miller, and Coors have in the domestic market. It should be the domestic industry’s top priority to try to merge into the overseas markets. There will be many growth opportunities lost and the potential for other foreign companies to take much of the control of the global market share if the major domestic industry’s players do not merge into these markets.

Conclusion

Almost a century ago the brewing industry was held to competition among many breweries in small geographic areas. The U.S. brewing industry today is characterized by the dominance of three brewers, which I talked about in this paper. There are many factors today that make the beer industry an oligopoly. Such factors include various advancements in technology, takeovers and mergers, economies of scale, barriers to entry, high concentration, and many other factors covered in this paper. Over the course of the paper I have tried to define an oligopoly to the best of my knowledge, give a brief history of the brewing industry, and show how the brewing industry today is an oligopoly.