Journal
AGRIBUSINESS
Volume 37, Issue 4, Pages 685-712Publisher
WILEY
DOI: 10.1002/agr.21698
Keywords
craft beer; differentiation; Markov‐ perfect equilibria; mergers; retail pricing; state dependence; strategic behavior
Ask authors/readers for more resources
This study examines the impact of craft brewery acquisitions on retail beer prices and firm profitability, finding that the estimates of mergers are closely related to the state-dependence in demand. It concludes that not all craft-beer buyouts in 2015 made economic sense from the acquirer's perspective.
The beer industry in the United States is in a period of dramatic transformation. Major breweries are acquiring much smaller craft breweries in an attempt to purchase growth, but it is not clear whether these acquisitions are economically viable. In this paper, we study the impact of craft brewery acquisitions on retail beer prices, and firm profitability in a dynamic, Markov-perfect equilibrium pricing framework. We find that the estimated impact of mergers, or buyouts, is critically dependent upon estimates of the extent of state-dependence in demand and is, in fact, negatively correlated with the initial shock to demand. That is, if the demand shock is positive, the effect of a buyout will be under-estimated by not accounting for state-dependence in demand, while it is over-estimated if the demand shock is negative. This finding is intuitive as the static model will not properly account for the long-term positive effects of a demand shock that is initially positive, or the long-term negative effects that are initially negative. Ultimately, we show that not all the craft-beer buyouts in 2015 made economic sense from the acquirer's perspective. [EconLit Citations: D43, L13, M31].
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available