Interpreting Rising Concentration: The Case of Beer

Despite considerable long-term progress in distinguishing conceptually between the fact of market power and the calculation of market concentration,' antitrust claimants-the Department of Justice, the Federal Trade Commission (FTC), and private litigants-continue to place substantial emphasis on defining a market, computing market shares, and calculating measures of concentration. The operating supposition is virtually always that monopoly or market power is positively associated with concentration. Whether other, offsetting characteristics are also associated with high concentration ordinarily receives less, if any, consideration. The most often-cited consideration weighing against an automatic condemnation of increased concentration (say, through horizontal merger) is that costs, market power, and concentration may all be jointly related. Economic analysis suggests that if higher concentration brings with it (is caused by or causes) lower industry costs, then it may also bring positive total benefits even if Antitrust concern with industry concentration focuses on market power-the ability of firms to restrict output and raise price. The brewing industry, among others, has been a major target of this concern because of its high and rising concentration. This paper sketches two alternative explanations for this change in industry structure: competitive expansion by the more efficient brewers and anticompetitive exclusion of equally efficient but smaller brewers. Empirical analysis indicates that competition is the better hypothesis in explaining changes in the structure of the beer market.