Think like an EconomistEvaluate whether industries such as beer and soft drinks have "enough" competition or if consumers would benefit from more competition. The influence of microbreweries and...
Evaluate whether industries such as beer and soft drinks have "enough" competition or if consumers would benefit from more competition. The influence of microbreweries and imports (of beer & soda) complicate analysis.
Demand is what drives markets, not what businesses produce. Of course, if a microbrewery makes a specific beer that people want, the demand increases and the microbrewery would be wise to increase production. But consumers must first purchase it before demand can grow; the unsatisfied demand creates the products consumers want. The brilliance of a truly level market is that a microbrewery can compete with a major conglomeration and win the market, because they are producing something the regular brewery will not or cannot. Level competition brings higher quality goods at cheaper prices into the market.
Competition involves more than simply the number of labels on the market, or even their price. In terms of soft drinks, beer or wine, whether there is enough access to the market for small producers would be another way to gauge the level of true competition. The price factor is sorted out by the market anyway, but those willing to pay a premium for specialty or craft beverages are often squeezed off the shelf, and having more selection would, I think, be good for the consumer.
The market itself will generally determine if there is "enough" competition in a given industry, unless that industry is saddled with monopolies. In other words, if people feel that there is insufficient competition in a given market, there should be every incentive for entrepreneurs to create new companies and/or products and thus to create more competition. I'm always astonished when I see how many different brands and wine and beer there are.
From a consumer's point of view, competition among companies is usually a good thing. Competition drives down prices. So, if there are more companies that produce good products at a low cost, it will benefit the consumer. However, I can think of one negative factor. If a company sells a good product at a loss to drive other companies out of business, this can be bad in the long run. That company may develop a monopoly, which could be harmful.
Because everyone's tastes and preferences are different, there will always be a market for new flavors and blends of flavors. The economist's concern lies in determining the sales needed to make it profitable to produce and market increased numbers of possible beverages. An unlimited expansion of the number of selections would not be financially feasible, but the market would be happy to have that many choices if they were available.
Customers will benefit from more competition because it has the potential to sharpen each companies game. New flavors, new varieties, better ingredients, different packaging all come from market research and trying to best meet consumer demands and interests. If there is no competition, then there is less incentive for the company to invest in research and development.
Looking at this from an economic point of view, so long as consumers would benefit from more competition, there is not "enough" competition. If there is "enough" competition, then there will be no more room for more because prices will have been driven down as far as they can go. If there is still room for prices to go down, there's not enough competition.
I think the recent rise in microbreweries has definitely forced big producers of drinks to think carefully about how they are marketing their product and what the best way to do that is. The fact is that small family run businesses have always had a loyal following in this area.