Product Differentiation and Concentration in the Brewing Industry

Abstract

RECENT events in the American brewing industry should be of great interest to students of industrial economics. A spirited debate over the potentially anticompetitive effects of advertising has enlivened the literature in that field. At the same time the brewing industry has experienced substantial concurrent increases in market concentration and promotional expenditure.' It is natural to consider to what extent the two latter developments have been causally related. In two recent articles published in this journal, Ann and Ira Horowitz have presented an extensive description of the concentration trend in this industry, but with little more than a passing reference to the possible influence of advertising and other forms of product differentiation.2 It is the purpose of this paper to fill that void. The first section below contains a brief review of the rising concentration in brewing. The second section attempts to explain that trend, focussing particularly on the role of product differentiation. Economies of scale in production, another possible cause, are briefly explored in the third section, which includes a brief summary and statement of conclusions.