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.
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Anheuser-Busch alone controls just over 50% of the market share, but there is no indication that Anheuser-Busch (along with SAB Miller and Coors/Molson) have experienced unreasonable gains. Even though concentration is high, there is intense competition in the industry. Competition in the beer industry exists on many different levels. Price, new product innovation, promotional activities, distribution networks, packaging, and brand equity are all different factors in which companies in the brewing industry compete. With all the competition among brewers, the buyer seems to be in a good position to demand the lowest price. However the brewers combat the pressure for lower prices with product differentiation.
If a brewer can convince a consumer that one beer is better than another is, the brewer can charge a higher price for the "better" beer. The product differentiation that exists in the beer market is a little different than in other industries in two ways. First, most people cannot tell the difference between brands of beer. Second, more expensive brands do not cost proportionally more to make than "economy" beer. Beer's distinction is purely made through promotional activities. The beer industry spends and extraordinary amount on promotional and advertising activities to differentiate brands. But when the beer industry is compared to companies in the beverage industry, such as Pepsi and Coca-Cola, it spends a modest