The beer industry has in the recent past experienced a trend in the rise of mini-breweries. Despite the increase of craft beer, several companies still stand tall in controlling the beer market. According to Davidson, the beer industry has been dominated by InBev and MillerCoors through acquisition means (Davidson, 2013). The monopoly environment created by the dominant beer companies is reviewed and the implications of the conditions influenced by the increase of craft beer also explored.
The beer industry is a near-monopoly. This is due to the dominance of major beer manufacturers in the market despite the increase in the craft beer producers. Thompson contends that despite the recent increase in craft beer, both InBev and MillerCoors still controls almost 90% of the beer market (Thompson, 2018). This is an indication that the beer industry is controlled by financially stable companies, even as the craft beer shoots upwards.
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Rent-seeking has been apparent in the beer industry. This has been evident through the high prices charged on beers. According to Congleton, Konrad and Hillman, rent-seeking can be best described as the gaining of profits at the expense of others (Congleton, Konrad & Hillman, 2008). Considering that the production of beer has since remained the same, bigger companies have taken the advantage to increase the prices. In return, they have been able to make ambiguous profits even though the number of beer consumers has reduced in the last two decades.
The beer market controlling giants gained the market through merging of small beer producers. The acquisition was facilitated by the need to control the market that has been threatened by the increase of craft beer. Most of the implications brought by the craft beer craze for the market have been the factor of prices and competition (Murray & O’Neill, 2012). Beer prices have been reduced to beat off the competition while at the same trying to match the tastes of consumers.
After successfully repealing the abolition of alcoholic drinks in the US, it provided an opportunity for existing companies to merge to have more power. This in return facilitated the growth of more craft beers that seek to venture in the beer industry. Spross posits that the last 40 years have seen courts and regulators become laxer about the beer industry, providing an environment for more craft beers (Spross, 2017). Reducing competition through merging and acquisition is a positive idea that has resulted in significant results. On the hand, normative ideas such as reducing prices to attract more consumers, so long as the cost of production is maintained have also been adopted.
Conclusively, the beer industry has a near-monopoly nature. This has been necessitated through the financial advantage enjoyed by the well-established beer companies such as InBev and MillerCoors. Although there is significant growth of craft beers, the current domination of established companies might not give them room to control the market share.
References
Congleton, R., Konrad, A., K. & Hillman. L. A. (2008). Forty years of research on rent seeking: an overview. ResearchGate . DOI: 10.1007/978-3-540-79182-9_1.
Davidson, A., (2013 Feb. 26). Are we in danger of a beer monopoly? The New York Times Magazine . Retrieved from https://www.nytimes.com/2013/03/03/magazine/beer-mergers.html .
Murray, W., D. & O’Neill, A., M. (2012). Craft beer: penetrating a niche market. British Food Journal, 114 (7), 899-909.
Thompson, D. (2018 Jan. 19). Craft beer is the strangest, happiest economic story in America. The Atlantic . Retrieved from https://www.theatlantic.com/business/archive/2018/01/craft-beer-industry/550850/.
Spross, J. (2017 Nov. 9). What beer reveals about monopoly power. The Week . Retrieved from https://theweek.com/articles/736059/what-beer-reveals-about-monopoly-power.
