2 Questions to address: a) What do we know about the demand for alcohol, and how is this relevant to policy makers wishing to curb consumption? b) What can you determine about the supply of alcoholic beverages (in terms of industry structure)? How might individual firms hope to get ahead in this market? c) Explain, using diagrams, how individual producers in this industry might be affected by the price floor implemented in Scotland. What determines the extent to which they are affected? d) Why do you think the policy makers have opted for a price floor over a tax? The Market for Alcoholic Beverages It is stated in The Economist print edition (2013) that according to World Health Organization, “the global consumption of alcohol has been …show more content…
If the firm sells more than Qo of beers, the profit will fall. Thus profit for the beer firm is area price P profit, B, C and P1 (shown in Figure 1.2b). We can get the value by getting Qo multiplied by difference in P profit and P1 (Profit = [P-ATC] x Q). In a long run, the beer firm can charge price higher than Average Total Cost and make profit. But certainly this will attract new firms to enter beer market (Hubbard et al. 5 2012). Therefore demand and MR will shift as new firms enter causing the first beer firm to break even. To avoid losing profits, Hubbard et al. (2012) indicate that firms need to convince customers that their product is indeed different through marketing. Scottish parliament imposed a price floor of 50 pence on hard liquor in May 2012. Price floor is “a legally determined minimum price that sellers may receive” (Hubbard et al. 2012). Figure 1.3 represents alcohol market when price floor is applied. Before price floor, area ABD was consumer surplus and area CE was producer surplus. As soon as price floor is inflicted, area B from consumer surplus is transferred to producers and area DE will become a Deadweight Loss. There is a deadweight loss because price floor has reduced the sum of consumer and producer surplus. Likewise, the price floor has caused the MB to become bigger than MC. In other words price floor will reduce economic efficiency (Hubbard et al. 2012). The extent where a firm is affected can be determined from the
“The beer industry in the United States generates $75 Billion in annual sales.” (Abelli, 4)
In this paper I will be talking about the U.S. beer industry and in short an overview of the brewing industry worldwide. I will talk about the barriers to entry, economies of scale, government intervention, pricing, current market trends, product differentiation, and imports. The focus being mainly on the U.S. brewing industry oligopoly. The U.S. brewing industry has three major players: Anheuser-Busch, SAB Miller, and Coors/Molson. Anheuser-Busch is currently the largest brewer in the world, producing over 100 million barrels a year. Anheuser-Busch currently owns over 50% of the market in the United States, with Miller trailing behind at 20% and Coors at about 11% with the rest of the market occupied by imports and craft breweries. When analyzing any industry, how easy it is for newcomers to enter the market is a great importance. If there are high barriers to entry
This means there is economic opportunity present in the craft brew industry and that it could be a profitable place to do business.
Boston Beer’s strategy is primarily focused on growth through differentiation. The sources of its competitive advantage can be classified as a company that provides high quality beer with unique flavors, a market driven approach, and a very efficient contract brewing strategy.
Boston Beer Company (BBC) has enjoyed much success with their craft beers with Samuel Adams as their main focus. Being the leader of this segment, overtopping five of their competitors combined (Exhibit 1), the company now must decide how to take advantage of the light beer market. Boston Lightship, their current light beer, had been a small contributor in BBC’s product line. Currently, it is facing dwindling sales with product volumes down from 12 000 cases per month to 3000 cases per month.
Per capita beer consumption in the country had been stable for many years. In order to find new opportunities
The purpose of this research paper is to analyze Sam Adams and the global craft beer market. I will apply microeconomic models to analyze the supply and demand conditions for Sam Adams, its price elasticity of demand for products, cost of production and the overall market. There will be recommendations to maximize future profits and sustain success for Sam Adams. In this paper I will also analyze the craft beer industry and recommend actions for better management of supply and demand, improving the cost of production and the different barriers of entry that Sam Adams can utilize to impact its future in the craft beer industry. Applying the concepts of variable and fixed costs, I will make recommendations for its output decisions and profitability that will help them succeed in a monopolistically competitive market structure. In the conclusion of this paper I will make recommendations to manage future production and sustain its success, as well as evaluate the business structure and effective decision-making strategies. The craft beer industry is a monopolistic competition because it has the ability to allow many firms to produce similar good or services, but it at the same time allows each firm to make independent production decisions and differentiate their product from the competition by creating its own pricing.
One of the weaknesses to distributing Coors beer in the two counties is the competition of other domestic and microbrew beers. Although the consumer and retailer willingness to buy Coors beer is high, will they actually purchase Coors beer when it becomes available to them? The questionnaires have strong feedback for Coors beer in the Delaware counties but people may become biased by their customer loyalty to other beer brand. There is a big enough marker share for Coors to be implemented, but will Brownlow be able to succeed in this competitive industry.
In addition to selling beer in bottles and cans, the distributorship will also sell kegs (contribution margin of 1/3 of beer in bottles and cans). The case states (p. 280) that keg beer prices at the wholesale level were about 45% of prices for beer in bottles and cans. These two facts can be combined with wholesale costs and prices for beer in bottles and cans to produce an overall weighted average contribution.
The firm initially produces where MR=MC charging price P1 and quantity Qa. At this price the firm has a large amount of
Within the craft beer market, consumers have many products to chose. A product is anything offered within a market that which fulfills a want or need (Armstrong & Kotler, 2015). In 2012, over 1,750 breweries operated in the United States (U.S.), with over 1,920 the following year (Brewers,
customers who are willing to buy the brewer at a lower price. Thus, they can profit by covering
The brewing industry is interesting to examine due to its relatively unique structure. Up until November 2015, the market was dominated by four main players, known informally as the “Big Four”. AB InBev was the largest, followed by SABMiller, Heineken and Carlsberg. In November 2015, however, ABInBev and SABMiller agreed a formal $107 billion takeover deal, combining the brewers into a company which industry experts claim would control around half of the industry’s profits (Mickle, 2015). As a result of the sheer size and complexity of the merger, it is anticipated that the deal will not be finalised until the second half of 2016 as ABInBev must negotiate with anti-trust regulators around the world with respect to their potential monopolistic position. As the deal is yet to be completed, this report will analyse ABInBev independent of SABMiller.
Although sales of premium brands have fallen in a steady response to the growing popularity of the craft beer. The industry revenue has been stable over the past 5 years. As a result, from 2011 to 2016 the industry revenue is expected an increase and growth annually at 6.7 percent over the five years,with a total of $39.5 billion . (IBISWorld iExpert) In the long-term, these numbers are expected that grow 0.9 percent annually within the next five years. The potential growth will be seen in the traditional and premium beer sector. As a response, the giant companies in the industry Anheuser-Busch InBev and MillerCoors look forward into the merges and acquisitions as a strategy to maintain market dominance. The strategy is based on the
Problem identification: The global beer industry was experiencing increasing competition due to the new and potential mergers and acquisitions of