Sticky Price Hikes Help Beer Profits

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Sticky Price Hikes Help Beer Profits
1. “The oligopolistic nature of the market worked,” commented one manager. What does this statement mean?

This statement mean that since the sellers are so few, what one Beer seller does in the market can impact the its competitors and the industry. This means that since the industry is dominated by a few firms, then the firms that are competing in the market have to take into account competitors’ moves about pricing, advertising and output.

2. How did the beer industry become oligopolistic? What longer-term processes appear to be at work? Can one apply the industry life cycle to the beer industry?

The beer industry has become Oligopolistic because out of the competition there are only few major brewers that have dominated the market. Some of the factors that helped that this industry became oligopolistic include: economics of scale, takeovers, mergers, technology advancements, barriers of entry. Since in the Beer industry few large firms produce large quantities of homogeneous or differentiated products these are the firms that dominate the market. The industry became oligopolistic forcing hundreds of brewers to close/merge because in this industry economics of scale appear to be extremely important; large firms would be more efficient at productions than small ones. The capital requirements in this industry are high. Additionally, barriers of entry to this industry are high (control over raw material, patents). Moreover, there is a tremendous brand loyalty in this market. Some of the processes that appear to be at work are reaping the benefits of cost reductions from merging. One cannot apply the industry life cycle to the beer industry (basic necessity) because this is a product that may never enter a decline phase. Obsolescence is very unlikely in this industry.

3. What does this article tell us about the nature of 5 forces in the US beer industry? Have these forces become more benevolent or...
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