Market Power Through the Lens of Beer
Matt Stoller has become famous (at least on Twitter) for his distinctive views on political economics. In particular, his theory is that firms have increased their market power to the detriment of consumers and (especially) workers, that the field of antitrust has been hobbled by a misguided focus on consumer welfare, and that this state of affairs explains why U.S. voters were so eager to vote for Trump.
I'll have more to write later, but I thought I would describe an interesting test case that I happen to know something about. A few decades ago, a very high percentage of beer brewed in the United States was made by "macro" breweries. The breweries were not quite so macro as they are today—the big brewers had not yet merged into the behemoths that now dominate the industry—but they were very big, and their collective market share was much higher than today.
In the following decades, smaller breweries (called "micro" for a while and now mostly called "craft") multiplied and increased their market share. The statistics probably aren't perfect, but apparently in the late 70s and early 80s there were under 100 breweries in the United States. Today there are over 6,000, with over 300 breweries in Colorado alone. (We don't need to get into the role of homebrewing in this increase, but for what it's worth homebrewing was legalized at the federal level in 1978.) "Craft" breweries (the term is controversial, but for our purposes it basically captures the market segment we care about) now supply about 12.7% of U.S. beer by volume and more than 23% by value. (The difference, of course, is explained by the much higher price that craft beer commands in the market.)
It is interesting to contemplate what this meant for beer consumers, but I think very few people acquainted with the beer scene would argue that it has been bad for them. The quality and variety of beer available today is vastly better than it was even ten years ago, let alone 40 years ago. I suppose the area you would want to scrutinize is the consolidation of the macro brewers and the effect on the price of macro beer, but even if you view that as a policy failure, I wouldn't think it would lead you to regret the emergence of "craft" breweries. It is true that if the macros had not been allowed to merge, it is possible that macro beer would have remained cheaper and craft breweries would have found it harder to compete. Based on my experience as a beer consumer, I do not find this to be a plausible theory, but I admit you would need to do the math to be sure.
Anyway that's not my point. Stoller's primary concern is not the consumer but the worker. So I think the interesting question to ask is whether brewery workers have benefited from the profusion of small breweries with practically no market power. On Stoller's view, it would seem that we've created something of a workers' paradise in the beer industry.
But in fact my understanding is that macro breweries are better employers along pretty much every dimension. Many of the macro breweries are unionized, and I believe pay is much better at macro breweries than at craft breweries. (The common advice given to people wanting to get employment in the craft brewing industry is to volunteer—that is, to work for free—at a craft brewery for a while to gain experience. Needless to say, this is very good for craft brewery owners and very bad for craft brewery employees. I am unaware that any macro brewery seeks or accepts volunteer labor.)
Worker safety is also better at the macros (this has been a persistent problem in the craft beer sector). Macro breweries provide regular, predictable working hours. Recently it has come to light that there is a lot of sexism and sexual harassment in the craft beer industry, and while I imagine the macro breweries are also not free of such problems, I would guess that they have professionalized human resource departments and established complaint procedures.
Admittedly some of this is conjecture, and I will try to firm up the data when I get a chance. But in general, I think a Stollerite would be gobsmacked by this state of affairs. The arrows all point in the wrong direction! The big macro breweries are, by hypothesis, abusive and exploitative. Small, scrappy employers like the craft breweries are shining examples of competition and the many benefits it provides to the working class. It is unthinkable that market concentration could be good for workers. And yet!
That's why I think Stoller's role as a kind of weird single-issue troll is unproductive. I'm sure there are plenty of examples of industries that use market power to exploit their employees, but this isn't some kind of law of nature. You have to do the empirical work (and probably the industrial economics) to understand what is going on in any particular industry. Just sitting back and lashing out at the Democrats for failing to adopt your highly idiosyncratic and mostly wrong policy agenda is a very counterproductive thing to do.
I'll have more to write later, but I thought I would describe an interesting test case that I happen to know something about. A few decades ago, a very high percentage of beer brewed in the United States was made by "macro" breweries. The breweries were not quite so macro as they are today—the big brewers had not yet merged into the behemoths that now dominate the industry—but they were very big, and their collective market share was much higher than today.
In the following decades, smaller breweries (called "micro" for a while and now mostly called "craft") multiplied and increased their market share. The statistics probably aren't perfect, but apparently in the late 70s and early 80s there were under 100 breweries in the United States. Today there are over 6,000, with over 300 breweries in Colorado alone. (We don't need to get into the role of homebrewing in this increase, but for what it's worth homebrewing was legalized at the federal level in 1978.) "Craft" breweries (the term is controversial, but for our purposes it basically captures the market segment we care about) now supply about 12.7% of U.S. beer by volume and more than 23% by value. (The difference, of course, is explained by the much higher price that craft beer commands in the market.)
It is interesting to contemplate what this meant for beer consumers, but I think very few people acquainted with the beer scene would argue that it has been bad for them. The quality and variety of beer available today is vastly better than it was even ten years ago, let alone 40 years ago. I suppose the area you would want to scrutinize is the consolidation of the macro brewers and the effect on the price of macro beer, but even if you view that as a policy failure, I wouldn't think it would lead you to regret the emergence of "craft" breweries. It is true that if the macros had not been allowed to merge, it is possible that macro beer would have remained cheaper and craft breweries would have found it harder to compete. Based on my experience as a beer consumer, I do not find this to be a plausible theory, but I admit you would need to do the math to be sure.
Anyway that's not my point. Stoller's primary concern is not the consumer but the worker. So I think the interesting question to ask is whether brewery workers have benefited from the profusion of small breweries with practically no market power. On Stoller's view, it would seem that we've created something of a workers' paradise in the beer industry.
But in fact my understanding is that macro breweries are better employers along pretty much every dimension. Many of the macro breweries are unionized, and I believe pay is much better at macro breweries than at craft breweries. (The common advice given to people wanting to get employment in the craft brewing industry is to volunteer—that is, to work for free—at a craft brewery for a while to gain experience. Needless to say, this is very good for craft brewery owners and very bad for craft brewery employees. I am unaware that any macro brewery seeks or accepts volunteer labor.)
Worker safety is also better at the macros (this has been a persistent problem in the craft beer sector). Macro breweries provide regular, predictable working hours. Recently it has come to light that there is a lot of sexism and sexual harassment in the craft beer industry, and while I imagine the macro breweries are also not free of such problems, I would guess that they have professionalized human resource departments and established complaint procedures.
Admittedly some of this is conjecture, and I will try to firm up the data when I get a chance. But in general, I think a Stollerite would be gobsmacked by this state of affairs. The arrows all point in the wrong direction! The big macro breweries are, by hypothesis, abusive and exploitative. Small, scrappy employers like the craft breweries are shining examples of competition and the many benefits it provides to the working class. It is unthinkable that market concentration could be good for workers. And yet!
That's why I think Stoller's role as a kind of weird single-issue troll is unproductive. I'm sure there are plenty of examples of industries that use market power to exploit their employees, but this isn't some kind of law of nature. You have to do the empirical work (and probably the industrial economics) to understand what is going on in any particular industry. Just sitting back and lashing out at the Democrats for failing to adopt your highly idiosyncratic and mostly wrong policy agenda is a very counterproductive thing to do.
posted by James | 9:27 AM
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