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The Effect of Mandated Exclusive Territories in the US Brewing Industry

Listed author(s):
  • Rojas Christian

    ()

    (University of Massachusetts - Amherst)

Registered author(s):

    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.

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    File URL: https://www.degruyter.com/view/j/bejeap.2012.12.issue-1/1935-1682.3088/1935-1682.3088.xml?format=INT
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    Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

    Volume (Year): 12 (2012)
    Issue (Month): 1 (May)
    Pages: 1-41

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    Handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:n:20
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    1. Sass, T. & Saurman, D.S., 1993. "Efficiency Effects of Exclusive Territories: Evidence from the Indiana Beer Market," Working Papers 1993_09_03, Department of Economics, Florida State University.
    2. Aviv Nevo, 2003. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Microeconomics 0303006, EconWPA.
    3. Doug Miller & A. Colin Cameron & Jonah B. Gelbach, 2006. "Bootstrap-Based Improvements for Inference with Clustered Errors," Working Papers 621, University of California, Davis, Department of Economics.
    4. Patrick Rey & Joseph Stiglitz, 1995. "The Role of Exclusive Territories in Producers' Competition," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 431-451, Autumn.
    5. Klein, Benjamin & Murphy, Kevin M, 1988. "Vertical Restraints as Contract Enforcement Mechanisms," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 265-297, October.
    6. Katz, Barbara G, 1978. "Territorial Exclusivity in the Soft Drink Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 27(1), pages 85-96, September.
    7. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
    8. Alberto Abadie & David Drukker & Jane Leber Herr & Guido W. Imbens, 2004. "Implementing matching estimators for average treatment effects in Stata," Stata Journal, StataCorp LP, vol. 4(3), pages 290-311, September.
    9. Patton Culbertson, W. & Bradford, David, 1991. "The price of beer: Some evidence from interstate comparisons," International Journal of Industrial Organization, Elsevier, vol. 9(2), pages 275-289, June.
    10. Sass, Tim R & Saurman, David S, 1993. "Mandated Exclusive Territories and Economic Efficiency: An Empirical Analysis of the Malt-Beverage Industry," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 153-177, April.
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