The Effect of Mandated Exclusive Territories in the US Brewing Industry

33 Pages Posted: 23 Jan 2011 Last revised: 27 May 2012

Christian Rojas

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

Date Written: April 30, 2012

Abstract

Theories on the welfare and competitive effects of exclusive territories are numerous, yet they provide ambiguous results. This paper exploits a natural experiment in the U.S. brewing industry to identify the direction of change in welfare caused by the use of exclusive territories. On January 31, 1991, the state of Arkansas enacted legislation which mandated all beer manufacturers to have exclusive territory clauses in their agreements with distributors. To identify the effect, I employ brand-level sales data before and after the legal change both in Arkansas as well as in nearby Oklahoma and Texas. Results are broadly consistent with a positive relationship between the use of exclusive territories and welfare: the most credible results suggest that the legal mandate increased brand-level volume sales by 45%. I conduct several falsification exercises and robustness tests to rule out other possible explanations for this large effect.

Keywords: Exclusive territories, beer industry, competitive effects

JEL Classification: C15, L11, L41

Suggested Citation

Rojas, Christian, The Effect of Mandated Exclusive Territories in the US Brewing Industry (April 30, 2012). Available at SSRN: https://ssrn.com/abstract=1744464 or http://dx.doi.org/10.2139/ssrn.1744464

Christian Rojas (Contact Author)

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States

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