The Economic Importance of Beer

Dimitri Wilson
MBA 6130 – Economics
Dr. Ali Said
January 29th, 2023
The practice of monopolies in America is supposed to be illegal but time and time again, we are
seeing organizations buyout or merge with one another, and the results are often similar to that of
a monopoly. Monopolies are characterized by the absence of competition, and the government
attempts to prevent monopolies through its antitrust laws. These Acts are enforced by the Federal
Trade Commission and the Antitrust division of the United States Department of Justice.
Antitrust laws prohibit practices that restrict trade and apply to all industries and the various
levels of industries. In regard to the beer market, the competition amongst companies has been
steadily decreasing. In the last 40 years or so, regulators and courts alike have become far more
lenient, which has led to a flurry of beer-maker mergers. The considerable change in the United
Stated beer market is detailed in The Week’s article that mentions how back in 2014, only 4 beer
makers were responsible for three-fourths of beer sales in America. This is a significant
difference from the 22 major beer companies back in 2000. Looking further into the history, we
find that the changes in the makeup of the beer industry over these years can be explained by
transitioning firms, buyouts and takeovers, and utilizing different market structures.
Through the first few weeks of class, Greenlaw’s textbook has outlined the four different market
types: perfect competition, monopolistic competition, oligopoly, and monopoly. At different
points in time, the beer market has evolved through economic trends. The very first breweries in
history enjoyed their times as complete monopolies, and from 1865 to 1920 the monopolistic
market, “formed with the increasing demand, the production of 3.6 million barrels in 1865 rose
to 66 million barrels in 1914. However only few leading manufacturing industries produced
beer.” (Stack) This increase in output did not reflect America’s growing population because
while the number of beer drinkers certainly did rise during these years, per capita consumption
also rose dramatically. Prohibition soon followed this development which led to a dramatic
increase in substitute goods being sold in place of alcoholic beverages, like dairy products and
malt syrups. (Stack) Once Prohibition ended in 1933, the market witnessed a reawakening of the
industry and gradually breweries started opening back up again. During this time, there were two
major leaders of the market, Anheuser Busch and Pabst, creating an oligopoly in its purest form
since they were the only companies legally authorized to produce alcohol. Following World War
II, the industry continued to grow and consolidate and from the 1980s to the early 2000s, the
growth continued nationally and internationally. During this time, the industry hit a peak in both
popularity and competitiveness as shown by the opening of various microbreweries forming
perfect competition during this market segment. However, as mentioned before, this was
followed by a decade of mergers and buyouts which returned the market to a near oligopoly,
according to Spross (The Week). Fortunately, the regulatory powers in the United States noticed
this trend. According to a report from the Department of Justice, Anheuser Busch's Budweiser
was on the cusp of becoming an abusive monopoly. “In January 2013, the department sued the
AB in Bev to prevent it from buying the remaining 50% share in Mexico's Grupo Modelo. The
AB in Bev is using a trigger strategy where if the competitors lower their prices they will adopt
mutually assured destruction doctrine.” (Notte) Being that the transactional information is all
public, it was not difficult to see the empire being built by Anheuser-Busch through its business
dealings. Looking through its history, we can see how the beer market has been one of the few
markets to witness each of the four market types through its dynamic past.
Looking at current statistics, we find that craft beer has made for a more competitive beer
market. Every year more than 1000 new craft breweries are opening with less than 300 breweries
closing during this time. The closure rate of breweries is certainly ticking up, but the number of
new entrants is higher than the closure thus leading to a market segmentation of perfect
competition amongst them. (Thompson) This is excellent for craft beer's future because this will
ensure that companies will consistently sell quality products at affordable prices, so long as their
supply is not affected.
In conclusion, beer may not the first thing that we associate with big economic debates, but its
history can help us understand the corrosive influence of monopoly power on American society.
Although today’s beer market looks much different than what it did 100 years ago, there are still
regulations that need to be upheld, such as the incident with Anheuser-Busch and the Department
of Justice. Nowadays, larger companies have shown they can support greater production, and as
a result they often pay the highest wages and attract the best talent. The craft-beer movement is
showing a consistent improvement with fairness within its economy and can be seen as a model
for the country’s other major markets.

References
Notte, J. (2017, May 12). Anheuser-Busch InBev shuts out craft beer brewers by hoarding hops.
MarketWatch. https://www.marketwatch.com/story/anheuser-busch-inbev-shuts-out-
craft-beer-brewers-by-hoarding-hops-2017-05-11
Spross, J. (2017, November 9). What beer reveals about monopoly power. The Week.
http://theweek.com/articles/736059/what-beer-reveals-about-monopoly-power
Stack, M. H. (2003, July 4). A Concise History of America's Brewing Industry. EHnet. Retrieved
January 29, 2023, from https://eh.net/encyclopedia/a-concise-history-of-americas-brewing-
industry/
Thompson, D. (2018, January 18). Craft Beer Is the Strangest, Happiest Economic Story in
America. The Atlantic. https://www.theatlantic.com/business/archive/2018/01/craft-beer-
industry/550850/