Craft Beer Craze Taking Place in the United States
Monopolies are entering the market day by day. They are causing the stir in almost every sector, with a majority of small subdominant companies exiting the market. The beer market in the United States has been one of the biggest offenders. The industry is dominated by few large corporations that are taking every share of the market. Small Craft beer manufactures are forced to fold their tail and exit the market before they even make their first profit. This sort of menace has troubled economists for a long time. Majority of them are saying that this form of market dominance in the brewing sector hurts workers and impedes innovation.
From 2002 to 2007, the market has faced a decrease in employment. However, in the last decade, something strange happened that caught the attention of every economist. The number of brewery establishments expanded significantly and the employment ratio has increased by almost 120 percent. The most amazing thing is that all this has happened when the U.S beer consumption has declined significantly. The reason for this, is because the US government has put in place measures to increase competitiveness between the big fish and upcoming small brewing companies. Some of the small beer businesses make great local quaffs even though their production and distribution is not nationwide.
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In this brief article, we are going to discuss the measure that the US government has put in place to ensure that small craft beer businesses can survive in an industry dominated by Large Corporations.
Many people say that a seemingly small competition is good for economic growth. However, not one of them has tried to determine what could happen in case that small competition grew and become impossible to manage.
The Rise of Craft Beer Microbrewers in the USA
California leads the park with the highest number of beer brewing headquarters in the U.S. It has over 520 brewing headquarters which correlates directly to the increasing number of people residing in the area. However, the craft brewers are still believed to be small. According to Brewer’s Association, craft brewers only produce up to 6 million of barrels or even fewer in a year. The brewers are also more independent owning over 75 percent of the brewery.
Although many people in the US have been producing their own beer, the rise of small, but successful microbrewers started as early as in the 1980’s. Just like other entrepreneurial ventures, the move was not an easy start. Majority of the businesses don’t make it. The US government has tried to ensure that there is a conducive environment for competition, but in some of the cases those standards don’t have significant impact on the craft beer industry. What this means is that big corporations have continued dominating the market and small companies have been left outside to survive or give in to the waves of competition.
Recognizing the rising and seemingly unstoppable growth of Craft brewing businesses in the US, companies are making tasty and high quality beer to match the needs of the growing population. The changes to alcohol laws have made it easier for some of the companies to thrive and be able to get a share of the market easily, as opposed to the traditional laws. Majority of the states have now recognized the sale of beer with alcohol content of 3.2+ percent. What this law made possible in the industry is the move to expand the production possibility for the new brewers.
Increased Craft Beer Tariffs
Beer manufacturing industry in the USA is dominated by international brewers. Majority of these international corporations have what we call competitive advantages. They produce and market cheap beer which pose a competitive disadvantage to small beer businesses in the United States. Tariffs are essentially duties and taxes that are imposed on an imported good to discourage domestic consumption of the said item. This makes domestic products from small domestic beer businesses more affordable. US government has over the past years imposed high tariffs to discourage the importation of craft beer to the US. This is one of the main reasons why small businesses in the U.S. are making huge milestones in the industry.
High tariffs are imposed to discourage importation of cheap liquor from competitive advantaged companies in the international arena. It increases the cost of domestic beer and a higher imports from multinational companies. Tariffs are used to promote favorable trading conditions between small local industries and large multinational corporations. Some of the leading industry advocates argue that the tariffs are necessary to protect domestic companies against randomly increasing international competition.
Competition laws are the laws that seek to attain health competition between companies. The laws are promoted through public and private execution. These laws are known as anti-monopoly laws in Russia and China. In the U.S, the government is applying a powerful theory which it has used to stop other mergers. Antitrust laws restrict the formation of cartels and also illegalize all forms of collusive agreements. They also restrict acquisitions and mergers of organizations on their move to dominate the market. The real situation in the beer market is that majority of companies are monopolizing the market with their cheap beer and discourage new entries due to the abuse of monopoly powers. The good thing about anti-trust laws is that they try as hard as possible to discourage the formation of monopolies and the consequent abuse of monopoly powers.
All the affected parties may at some point bring a case in the court to enforce antitrust laws. In this move, any scope of the antitrust laws and how they may affect the entry or new businesses in the US, the freedom of any enterprise to conduct businesses whether large or small, and protecting all communities, consumers and businesses are strongly debated. The biggest concern of antitrust laws is to promote efficiency in production and protecting the interest of small enterprises and the consumers in the market.
Over the years, many brewing companies have entered the beer production and selling business with some of them thriving and some of them failing. Some of them have grown to big entities and some of them closed before they even make their first profit. The beer industry is a very classic example of how antitrust laws have shaped the beer industry in the US.
In 2016, the US government increased the level of protection for small businesses from competition by implementing changes and improvements in the antitrust laws. Some of the big beer producing companies that had earlier merged to restrict entry for small businesses were separated. AB InBev and SABMillers were made separate in a move to make them independent private competitors. They were also to refrain from practices that restrict distribution of smaller rival brews. The Justice Department said that the settlement will avert any increase in absorption in the US beer industry.
The laws are also there to ensure that big corporations will not absorb smaller businesses in the move to gain access to their growing market. Many of the craft brewers in the US already gave their complains that the AB InBev’s incentive system for beer distributors restricted the sale of competing beers in the US.
Promoting Health Competition In The Craft Beer Market
Competition protects everybody in the market including consumers, producers and other businesses. It encourages the businesses to compete for customers and each company will work hard to improve the quality of their products and services to attract more customers. However, when competition is unhealthy, it can affect small businesses and give rise to monopolies. Most jurisdictions have since then adopted several laws that promote healthy competition. The anti-competitive laws protect small beer brewing businesses from entering in anti-competitive agreements and practices. These laws don’t only apply to public and formal agreements but also into any sort of informal agreements.
Competitive laws define certain types of behaviors which are supposed to be followed by companies and businesses when merging and consolidating. These behaviors include fix prices, limit and control production, different conditions to equivalent transactions with other trading parties which could otherwise promote competitive disadvantage.
However, competition laws don’t prohibit your company from falling into a dominant position in the market. They only discourage unsafe tactics in getting in such a position. The laws also discourage abuse of the position to discourage other small upcoming companies. It becomes a case of concern when you act in a manner that can affect the welfare of consumers and the efficiency in the market. A good example is increasing price for a cup of Keg Beer simply because you know your customers have limited alternatives.