Every year, the beer sold at Oktoberfest got a lot more expensive. And yet, for the most part, festival goers didn't seem to mind—not, at least, if their spending habits were of any indication.
From about 1995 until 2012, beer consumption per capita at the once-a-year brew festival rose with little interruption. The chart below, plucked from UniCredit's Research's Oktoberfest 2015 report, shows the steady rise in red (it has since fallen off a tad, which we'll get to in a second).
That uptick came despite a furious increase in beer prices at the event—price increases that far outpaced both general upward price trends and beer specific inflation in Germany. This bit from the report puts the Oktoberfest beer inflation in perspective:
Without getting nostalgic and blaming anybody, in 1985 the price for one Maß [one liter of beer] was 6.1 deutschmarks, or the equivalent of EUR 3.1 [or $3.50]. Since then, the beer price at the Wiesn has risen by more than 220%. This compares to just a 69% rise in German consumer prices.
The chart below should help too. Bottled beer price growth looks flat by comparison over the years. Very flat.
The reason the simultaneous rise in beer prices and beer demand per person at Oktoberfest is bizarre is that beer is normally what economists call an elastic good. When beer gets more expensive, people tend to buy less of it. "On average, a 1% increase in the price of beer triggers a roughly .3% decline in the demand," a report by UniCredit Research noted in 2013.
At Oktoberfest, however, up until a few years ago, there seemed to be an inversion of the conventional understanding of beer economics. Ever since the early 1980s, a 1% increase in beer prices has actually resulted in a 0.3% increase in demand for beer at the festival.
The suggestion, according to UniCredit Research, is that beer sold at Oktoberfest might be what is known as a giffen good, which people buy more—not less—as it gets more expensive. And that's interesting, because very few goods are treated this way by the world. Up until 2008, when researchers showed that rice might behave in this way, most argued that giffen goods existed only in theory. Some, as it happens, are yet to be convinced.
The past couple years have softened the idea that beer demand and prices at the raucous event tend to follow suit. In 2013, beer prices rose and beer demand fell. The same happened in 2014. "As sales per visitor have fallen for two consecutive years, the question is whether Oktoberfest beer is beginning to turn into a normal good or whether we are just seeing a transitory correction in beer consumption at the Oktoberfest," the 2015 report says.
One thing that might be causing beer to sell at the festival like nowhere else is the lack of competition. In Germany alone, there are more than 1,300 breweries. It's hard for any single one of them to wield pricing power over the market (make you make beer more expensive, and no one will buy it because there are so many other options). At Oktoberfest, however, competition is limited, and the cost of operating a tent, from which vendors sell beer, has been rising for various reasons (increasingly stringent security requirements have played a sizable role). Passing that off to consumers has been comparatively easy.
And patrons, having paid to fly out to Munich, committed to participate in the shenanigans, might simply be too determined to have fun—or not sober enough to care—to curb change their big drinking plans. If you flew hundreds, or thousands, of miles, you're not only going to drink beer no matter the price, but might also want to drink the best, priciest beer possible. You've come this far, so why not!
It's hard to imagine that beer at Oktoberfest is a giffen good, because giffen goods are, by definition, inferior goods. The whole concept relies on the idea that they are so inferior that competition doesn't affect them in the same way it affects other things. It would have to be that beer was so expensive at Oktoberfest that people couldn't buy food, and, as a result, bought more beer. At most, that might be true for certain patrons—the poorest ones.
This year's event began this past Saturday, September 19th, and will last for another week. Some 6 million beer enthusiasts in all will partake (for perspective, that's nearly twice as many people as the number who went to the 2014 FIFA World Cup). They will begin their imbibing early in the morning, when beer stands open ( 10 a.m. during the week, 9 a.m. during the weekend), and call it quits at 10:30 p.m., when the celebration closes each day.
The average price of a liter of beer is 10.2 €, or roughly $11.50, this time around, some 3 percent higher than last year. Not long after October 4th, when the festival comes to a close, we'll have a sense of whether people are coming to their senses and buying less beer, or going back to their strange ways, giving life to the weird economics of Oktoberfest once again.