Advanced Search
MyIDEAS: Login

Does the King Use Its Power? Price Competition in U.S. Brewing

Contents:

Author Info

  • Rojas, Christian
Registered author(s):

    Abstract

    Pricing behavior of firms in differentiated product markets has been studied intensely in recent empirical work. Despite several accounts in various industries, price leadership has remained mostly unassessed. This study analyzes price competition in the U.S. brewing industry with a focus on price leadership by the largest U.S. beer producer Anheuser-Busch and its heavily marketed "King of Beers" brand Budweiser. This paper employs a unique nationwide data set on brand-level sales collected before and after a 100% increase in the federal excise tax on beer. Brand-level demand estimates are combined with several supply models, including several price leadership scenarios, to simulate prices that would have prevailed under each model after the tax increase. These "predicted" prices are then compared to "actual" prices after the tax increase to determine the fit of the different supply models. While Bertrand-Nash behavior appears to be a more suitable model of price competition, it tends to under-predict price increases of more price-elastic brands and to over-predict price increases of less price-elastic brands. In particular, the predicted price of Budweiser is much larger than its actual value. An interpretation of this result is that Anheuser-Busch could exert more market power through its flagship brand than it actually does. Overall, actual price movements as a result of the tax increase tend to be more similar across brands than predicted by any of the models considered. While this pattern is not inconsistent with leadership behavior, leadership models considered in this paper do not conform with this pattern.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://purl.umn.edu/25172
    Download Restriction: no

    Bibliographic Info

    Paper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 25172.

    as in new window
    Length:
    Date of creation: 2005
    Date of revision:
    Handle: RePEc:ags:uconnr:25172

    Contact details of provider:
    Postal: 1376 Storrs Road, Unit 4021, Storrs, CT 06269-4021
    Phone: (860) 486-1927
    Fax: (860) 486-2461
    Email:
    Web page: http://www.fmpc.uconn.edu/
    More information through EDIRC

    Related research

    Keywords: Agribusiness; Demand and Price Analysis; Industrial Organization;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Moschini, GianCarlo, 1995. "Units of Measurement and the 'Stone Index' In Demand System Estimation," Staff General Research Papers 5058, Iowa State University, Department of Economics.
    2. Gasmi, Farid & Laffont, Jean-Jacques & Vuong, Quang, 1992. "Econometric Analysis of Collusive Behavior in a Soft Drink Market," IDEI Working Papers 16, Institut d'Économie Industrielle (IDEI), Toulouse.
    3. Kadiyali, Vrinda & Vilcassim, Naufel J & Chintagunta, Pradeep K, 1996. "Empirical Analysis of Competitive Product Line Pricing Decisions: Lead, Follow, or Move Together?," The Journal of Business, University of Chicago Press, vol. 69(4), pages 459-87, October.
    4. Slade, Margaret E, 1995. "Product Rivalry with Multiple Strategic Weapons: An Analysis of Price and Advertising Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 445-76, Fall.
    5. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
    6. S. P. Anderson & A. de Palma & B. Kreider, 2000. "Tax Incidence in Differentiated Product Oligopoly," THEMA Working Papers 2000-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    7. Rotemberg, Julio J & Saloner, Garth, 1990. "Collusive Price Leadership," Journal of Industrial Economics, Wiley Blackwell, vol. 39(1), pages 93-111, September.
    8. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
    9. Jerry A. Hausman, 1996. "Valuation of New Goods under Perfect and Imperfect Competition," NBER Chapters, in: The Economics of New Goods, pages 207-248 National Bureau of Economic Research, Inc.
    10. Pinkse, Joris & Slade, Margaret E., 2004. "Mergers, brand competition, and the price of a pint," European Economic Review, Elsevier, vol. 48(3), pages 617-643, June.
    11. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ags:uconnr:25172

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.