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Markups and product differentiation in the German brewing sector

Author

Listed:
  • Giannis Karagiannis
  • Magnus Kellermann
  • Simon Pröll
  • Klaus Salhofer

Abstract

In this paper, we provide a method to separate the product differentiation markup from other sources of market power, i.e., collusive behavior or lack of market transparency, based on the estimation of a single reduced form equation. We apply this method to a sample of about 200 breweries in Germany, because beer is a differentiated product and at the same time the sector has repeatedly been suspected to show collusive behavior. Our empirical results show that a significant part of the estimated markup is due to product differentiation. This is especially true for beers produced in Bavaria. However, there are other important sources of imperfect competition. Markups are higher for large firms and increase over time. In addition, we observe increasing returns to scale and average costs above marginal costs. Hence, in the German brewing sector a high markup does not necessarily translate into a high profit margin. [EconLit citations: L13; L66].

Suggested Citation

  • Giannis Karagiannis & Magnus Kellermann & Simon Pröll & Klaus Salhofer, 2018. "Markups and product differentiation in the German brewing sector," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 61-76, December.
  • Handle: RePEc:wly:agribz:v:34:y:2018:i:1:p:61-76
    DOI: 10.1002/agr.21528
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    Cited by:

    1. Liam Keenan, 2020. "The geographies of the institutional and industrial constraints on the financialization of German brewing," Environment and Planning A, , vol. 52(8), pages 1662-1680, November.
    2. Weiss, Christoph, 2020. "Preisbildung bei unvollkommener Konkurrenz," IAMO Discussion Papers 305467, Institute of Agricultural Development in Transition Economies (IAMO).
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    4. Alessandro Bonanno & Carlo Russo & Luisa Menapace, 2018. "Market power and bargaining in agrifood markets: A review of emerging topics and tools," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 6-23, December.
    5. Simon Pröll & Giannis Karagiannis & Klaus Salhofer, 2019. "Advertising and Markups: The Case of the German Brewing Industry," Working Papers 732019, Institute for Sustainable Economic Development, Department of Economics and Social Sciences, University of Natural Resources and Life Sciences, Vienna.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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