Football season is here. Bud, Miller, or Coors, the classic American lagers, are the beverage of choice to accompany the big game throughout the US. Despite the recent surge of microbrews and imports, the big three brands still capture more than 60% of the market. With the recent merger of Miller and Coors only two large national brewers remain. No doubt many beer drinkers have wondered whether this merger has raised the price of their brand.Mass produced beer all around the world is most of the time crap, and there are a lot of better quality substitutes out there, so I find myself asking Why do we care even if mergers do lead to price increases? After all if increases in price cause people to substitute away from the low quality mass produced beers into higher quality beers, why do we care? This looks like a good thing.
We have recently taken up the task of answering this question. We did this for two related reasons.
As it turns out, breweries make a great place to study these two issues because shipping beer to markets far away is costly.
- We wanted to measure net price increases to beer drinkers.
- But we also wanted to see if we could sort out (a) the cost savings that might result from beer production being closer to consumers from (b) the monopolistic pressure on prices that mergers encourage.
What did we find? Well, it turns out there were both anti-competitive effects of the merger and cost saving effects. What this means in practice is that whether a beer drinker faced a price increase or a price decrease depended on where the drinker lived. On average prices neither increased nor decreased, with increases in some markets being offset by decreases in others.