The Effect of Mandated Exclusive Territories in the US Brewing Industry
33 Pages Posted: 23 Jan 2011 Last revised: 27 May 2012
Date Written: April 30, 2012
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: Suggested Citation