Economics at your fingertips  

Dynamic model of beer pricing and buyouts

Timothy J. Richards and Bradley J. Rickard

Agribusiness, 2021, vol. 37, issue 4, 685-712

Abstract: The beer industry in the United States is in a period of dramatic transformation. Major breweries are acquiring much smaller craft breweries in an attempt to purchase growth, but it is not clear whether these acquisitions are economically viable. In this paper, we study the impact of craft brewery acquisitions on retail beer prices, and firm profitability in a dynamic, Markov‐perfect equilibrium pricing framework. We find that the estimated impact of mergers, or buyouts, is critically dependent upon estimates of the extent of state‐dependence in demand and is, in fact, negatively correlated with the initial shock to demand. That is, if the demand shock is positive, the effect of a buyout will be under‐estimated by not accounting for state‐dependence in demand, while it is over‐estimated if the demand shock is negative. This finding is intuitive as the static model will not properly account for the long‐term positive effects of a demand shock that is initially positive, or the long‐term negative effects that are initially negative. Ultimately, we show that not all the craft‐beer buyouts in 2015 made economic sense from the acquirer's perspective. [EconLit Citations: D43, L13, M31].

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Agribusiness is currently edited by Ronald W. Cotterill

More articles in Agribusiness from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2021-10-23
Handle: RePEc:wly:agribz:v:37:y:2021:i:4:p:685-712