How Joint Ventures Impact Beer Pricing
According to research by Drexel School of Economics professor Matthew Weinberg and Georgetown University professor Nathan Miller, consumers pay noticeably more for their macro-brewed beer because of mergers.
In June 2008, SAB Miller PLC and Molson Coors Brewing combined operations in the US, creating the MillerCoors joint venture. At the time of the partnership, they stood as the second and third largest firms in the US brewing industry. The joint venture was approved after antitrust review because the cost reductions created by combined production of the two companies were believed to outweigh the potential creation of monopoly pricing power.
In their study, the researchers explored the economic impact of this joint venture on pricing. To do this, they reviewed supermarket retail scanner data from a ten-year period (2001 to 2011) across 39 US locations.
They found that leading up to the joint venture in 2008, beer prices increased at a rate less than inflation, showing a downward trend from 2001 to 2008. However, the prices jumped abruptly in fall 2008 by six to eight percent, and markups were 17 to 18 percent higher. This price increase was not only seen with MillerCoors products, but also with their biggest domestic competitor, Anheuser-Busch InBev causing questions of price coordination.
After identifying the price increase, Weinberg and Miller determined a standard model of competition between rival companies could not explain the increase.
Despite the intense oversight of potential mergers by the Department of Justice and Federal Trade Commission, evidence shows the joint venture shifted the competitive environment in a way that is consistent with price coordination.
Weinberg’s paper titled “Understanding the Price Effects of the MillerCoors Joint Venture” is forthcoming in Econometrica.
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