Planet Money did a pretty good show on anti-trust issues in the beer market centering around the proposed InBev purchase of Modelo, but I think they whiffed on one major point. The key to whether monopolies pose a threat to competitive markets is barriers to entry, ie, how difficult or expensive it is to enter the market as a producer. If barriers to entry are sufficiently low, you could concievably have a competitive market with a single producer because that producer’s desire to raise prices will be checked by the potential of competition. The existence of a "maverick effect" like the one decsribed, where a relatively small competitor is a check on monopolistic or duopolistic pricing, is a hint that this may be the case in the beer market.

So is this:

A lack of substantial entry barriers is a key characteristic of the craft-brewed beer industry. "Modern Brewers Age" asserts that "ample capital is available today so brand-new breweries start operations with state of the art equipment and skilled brewers."6 Evidence of the ease of entry is the fact that during 1994 the total number of craft brewers, including regional specialty, microbreweries and brewpubs, increased by a growth rate of 41%, well above the 29% growth enjoyed during 1993.7 Factors which facilitate entry are availability of basic physical resources and insignificant economies of scale and scope. However, access to distribution channels is increasingly becoming a barrier to entry…

Entry barriers in the craft-brewed beer industry are currently low to moderate. Evidence of this is the recent imbalance between high new entrance rates and low exit rates. Only one in six new entrants failed in 1995 while the number of new entrants continued to grow exponentially.10 The factor that may explain this imbalance is the considerable growth in demand in the craft-brewed beer industry that has kept exit rates lower than would otherwise be expected (See Exhibit 6). We conclude, therefore, that entry barriers are low to moderate.

And this:

The research organization Mintel reports that sales of craft beers, including Boston Beer Company‘s (SAM +1.08%) Samuel Adams brand, the Craft Brew Alliance’s (BREW +1.80%) Widmer Brothers and Chico, Calif., mainstay Sierra Nevada, more than doubled from $5.7 billion in 2007 to $12 billion in 2012…

The Brewers Association craft beer industry group has been crowing about that growth for the last few years, and says craft beer expanded 13% by volume and 15% in sales back in 2011 alone. Meanwhile, the total number of breweries in the U.S. rose from 1,793 in 2010 to 2,336 at the end of December. That easily surpasses the 2,011 breweries operating here in 1887, when brewing hit its peak with help from European immigrants who brought their home countries’ brewing traditions along for the ride…

Craft beer is a tiny pour in the beer industry’s $78 billion stein, but its take is rising. The Brewers’ Association says craft beer accounted for 5.7% of all beer by volume in 2011 while bringing in 9.1% of the industry’s sales.

Note that Sam Adams, while being technically a craft beer, is fracking everywhere.

Last data point, keeping this one local – in recent years, the Greater DC area has seen an explosion in new craft breweries. In order to not play favorites, and because they are all (to varying degrees) awesome, I will simply list and link to all of them:

DC Brau
Chocolate City Beer
3 Stars
Lost Rhino
Port City
Baying Hound

All of which have opened in the last 3 years. This doesn’t count (awesome) new brewpubs like Mad Fox, as well as lots of other great local breweries and brewpubs.

And how hard is it for these breweries to expand? So hard one is doing it on Kickstarter. Obviously, that’s not how you get to be the size of Boston Beer (forget Grupo Modelo), but it’s noteworthy that all of these breweries are pretty much selling all the beer they make and are looking for ways to increase capacity.

Long story short: I’m not too worried about producer consolidation in the beer market because it’s just not that hard to make beer. Yes, it is obviously true that if InBev and MillerCoors jack prices in a post-Modelo world that it would affect people in a way that wouldn’t be entirely offset by craft beer, since by definition craft beer isn’t mega-scale super-cheap stuff, but a) it wouldn’t be hard for some capitalist to start a new mega-brewery and undercut the existing giants, and b) to the extent that InBev and MillerCoors are serving a different market than craft breweries by selling cheaper stuff, that advantage dissapates if they hike prices. Why pay $12 for a six-pack of Budweiser if you can pay that much for the same quantity of Flying Dog or Dogfish Head or Great Lakes or Long Trail or Harpoon or Bells or…you get the idea.

Now I’m thirsty.

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