An Analysis of Market Power in the U.S. Brewing Industry: A Simultaneous Equation Approach

Abstract

The U.S brewing industry plays an important role in the U.S. economy. There is an on-going debate over the impact of rise in concentration in the brewing industry as well as its competitiveness, e.g., Denney et al. (2002), Tremblay and Tremblay (2005). Such on-going concerns and debate over the issue of U.S. brewing industry's rise in concentration and potential market power are relevant public policy concerns. Therefore, the purpose of this paper is to use empirical models to test the relationship between concentration and market power in the U.S. brewing industry using a contemporary simultaneous Structure-Conduct-Performance (SCP) approach. The period of analysis was from 1980-2009. Using a modified SCP model, it was found that higher levels of concentration in the industry have led to higher levels of profitability measured by the Lerner index.

Keywords: U.S. brewing industry, market power, oligopoly, SCP

JEL Classification: D43, L13