Tuesday, June 12, 2007
Beer and Concentration...
...not always known for being travelling companions. But the concentration referred to is that of the beer industry itself. How much of the overall beer market is accounted for by the largest beer companies? It turns out that the answer to that question differs quite a bit between the US and Germany. I learned about it from an article by William James Adams, "Beer in Germany and the United States," published in the Journal of Economic Perspectives in Winter, 2006. In Germany in 2000, the top three beer manufacturers accounted for 24 percent of domestic beer shipments; in the US, alternatively, the top three producers that year accounted for 88 percent of domestic output. While craft beers have been on the rise in the States, they remain quite small (about 3.2 percent) in terms of the overall beer market; meanwhile, substantial regional breweries have been more-or-less eliminated in the US, but not in Germany. In the US, Anheuser-Busch produces a majority of the domestic beer output; in Germany, the largest producer accounts for only some 17 percent of output.
The Adams article tries to explain the difference in industry concentration. The overall story is fairly complex, but one of the big factors pushing towards concentration in the US market is an unusual economy of scale: it is not that average costs of production per se fall as brewery size increases, but rather, marketing becomes more effective. National television advertising was what propelled Anheuser-Busch and a few other large companies ahead of the regional breweries, which eventually succumbed.
But wait, don't they have TV in Germany, too? Well, yes, but the German TV market was arranged in such a way prior to 1990 that advertising on commercial television was not all that attractive and did not offer much of an advantage to national producers. The TV market has changed a lot since then, providing more of an advantage to national marketers, and concentration in the German beer market has been rising of late.
Adams doesn't mention it, but the high concentration within US brewing probably eases the implementation of self-regulation. Here (8-page pdf) is the Beer Institute's Advertising and Marketing Code. I am troubled by one element of the code, that "Beer advertising and marketing materials should not disparage competing beers." Could there be an antitrust problem there?
The Big-3 US brewers, plus many others, are members of the Beer Institute; I don't believe that Pabst, the fourth largest brewer, is a member, however.