Market Power and Price Competition in U.S. Brewing

Christian Rojas ()
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Christian Rojas: University of Massachusetts

No 90, Food Marketing Policy Center Research Reports from University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy

Abstract: This paper analyzes the degree of market power in the U.S. brewing industry as measured by the closeness between the observed pricing behavior of ?firms and the equilibrium prices predicted by various pricing models: Bertrand-Nash, leadership, and collusion. Price leadership focuses on the largest U.S. beer producer Anheuser-Busch and its heavily marketed brand Budweiser whereas collusion focuses on the three largest brewers. Results indicate that Bertrand-Nash predicts the pricing behavior of fi?rms more closely than other models. Concerns about non-competitive pricing of the forms studied here should hence be low in this industry. Despite its closeness to the observed pricing behavior, Bertrand- Nash under-predicts prices of more price-elastic brands and over-predicts prices of less price-elastic brands.

Pages: 41 pages
Date: 2005-11
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