Is there market power in the U.S. brewing industry?

Abstract

Increased consolidation in the U.S. brewing industry has raised legitimate concern about brewing firms’ ability to exert market power over the downstream. Using structural models of oligopoly behavior, this research estimates the market power in the U.S. beer (manufacturing) industry over a 30-year period, during which the sector experienced a rapid increase in concentration and the demise of many small firms. The results show that the beer market is price-sensitive, and that both distilled spirits and carbonated soft drinks were substitutes for beer. While we were unable to detect the impact of the labor and material costs for the price of beer, we found that the federal tax on beer increased beer prices. Our results indicate that while there was some indication of market power, U.S. brewers did not exert oligopoly power over downstream firms (distributors and retailers).