The Global Beer Industry

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In The Economist’s “Sell Foam like Soap” publication, the beer industry and its symbiotic ties to advertising are highlighted and explained in a fashion that relates well to our economic study of the industry. The market structure of the beer industry has led to an effect of high seller concentration that leads our study to the importance of factors such as advertising and product differentiation. In “Sell Foam like Soap,” the author highlights the issue of slumping sales and the major breweries’ subsequent changing business models that will attempt to counteract the thinner profit margins through robust increases in advertising. In the next few paragraphs, the economic relevance and analysis of these industry changes will be discussed. Since the middle of the twentieth century, mergers have defined the structure of the beer industry. Due to a current recession and decreased on-premises consumption, big brewers have attempted to make up for lackluster sales by pushing into emerging markets. Over the last several years, these major breweries have bought up or merged with local breweries in order gain access to the distribution chains. This is paramount in the beer industry due to the reality of high shipping and fixed costs. Economies of scale are thusly created as a result of the consolidation in the industry. Such economies are created when large plants produce at lower per unit costs than small ones. Despite these costs advantages over smaller “craft” breweries, emerging markets are far less lucrative than those of the rich countries. When examined from an economic perspective, this should not be surprising. Entry into a new market is particularly hard and expensive for any firm in the beer industry, particularly when advertising plays such a pivotal role in entry conditions. In these economies of scale, a firm’s general goal is to achieve minimum efficient scale. This is defined as the smallest amount of output that a firm needs to produce in order to...
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