One of the potential problems of industry concentration is the suppression of competition and reduction of consumer choice. Potential market entrants may view the prospect of entering highly concentrated markets as daunting given the market power of incumbents. In some cases, however, market concentration may itself be a source of opportunity for new entrants that are able to differentiate their products or services from those of the dominant players. A new paper suggests that this may be what occurred when Miller and Coors entered a joint venture.
The paper, “Did the MillerCoors Joint Venture Strengthen the Craft Beer Revolution?” by José Azar and Xabier Barriola, suggests that concentration in the beer market created such opportunities for craft beer makers. In effect, the hulking MillerCoors dinosaur left room for mammalian craft beer upstarts.
Here is the abstract:
In this paper, we study the effect of the MillerCoors joint venture on craft brewers in the United States. Using a detailed scanner data set, which covers 1,739 grocery stores located in 33 cities, we track the assortment and the market share of craft beers that were offered from 2001 until 2011. After separating the markets into two groups, most affected and least affected by the merger in terms of concentration, and using the synthetic control method, we find that the number of craft beers and their market share significantly increased after the event. In particular, assortment increased by 27.5% and revenue shares by 1 percentage point in the treatment group, relative to the synthetic control group. This shows that smaller firms were able to enter into highly concentrated markets, and that entry was stronger in the markets that were most affected by the consolidation of large firms.
Interesting stuff (and it’s about beer!)
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