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Don’t fear Big Beer: Consolidation can keep prices steady over time, study says

This looks like a scary graph of beer price increases. The researchers determined, though, that the rise is largely not attributable to consolidation in the industry; there may be other factors at play.
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It's almost Labor Day weekend, and you're probably headed at some point to pick up a few six packs for a BBQ or two. In recent years, your beer options have narrowed, at least in terms of who owns them: In June, Anheuser-Busch Inbev merged with Grupo Modelo to give it some 46 percent of the U.S. market. The new super-brewery owns seemingly indie brands from Goose Island to Shock Top, along with the omnipresent Bud.

The fear with consolidation, of course, is that prices will increase as a company starts to monopolize a given market. But a new study out from the National Bureau of Economic Research suggests that the efficiencies from broader production and distribution networks offset the incentive to raise prices. Which probably means: Don't worry too much about price gouging, at least over the long term.

To look at the effects of beer market consolidation, researchers Orley Ashenfelter of Princeton, Matthew Weinberg of Drexel and Daniel Hosken of the Federal Trade Commission studied retail scanner data following the 2008 merger of Miller and Coors, which at the time were the second- and third-largest companies in the industry. The merger was allowed because of efficiencies expected to arise from producing more Coors products in Miller plants, which would allow the company to save on shipping costs.

And indeed, they found the rationale was justified — eventually. "The effect of the increase in concentration on pricing was nearly exactly offset by efficiencies created by the merger," the authors write. "The merger reduced the average distance between a local market and a Coors brewery by 364 miles, and our estimates imply that, all else equal, this reduced the average price of all lager style beers by approximately 2 percent."

The price decreases caused by shipping efficiencies did factor in over time, with the merger raising prices in the short term. So if beer prices seem higher after a merger, know that they'll most likely start to level off as larger beer companies get their production and distribution sorted out. (Longer term, factors like increasing commodity prices tend to make it more expensive anyway.)

Of course, not all combinations are the same. In the case of Anheuser-Busch Inbev-Grupo Modelo, the Justice Department required divestments that would preserve competition in the U.S., and company executives see the move as part of a strategy to increase sales internationally anyway. Also, there are other potentially negative effects of beer mergers, like variety in taste and the viability of small brewers.

But in general, it appears that greater consolidation in itself needn't mean your Labor Day drinking costs more.