Sticky Price Hikes Help Beer Profits Essay Example

Sticky Price Hikes Help Beer Profits Essay Example Sticky Price Hikes Help Beer Profits Essay Sticky Price Hikes Help Beer Profits Essay Sticky Price Hikes Help Beer Profits 1. â€Å"The oligopolistic nature of the market worked,† commented one manager. What does this statement mean? This statement mean that since the sellers are so few, what one Beer seller does in the market can impact the its competitors and the industry. This means that since the industry is dominated by a few firms, then the firms that are competing in the market have to take into account competitors’ moves about pricing, advertising and output. 2. How did the beer industry become oligopolistic? What longer-term processes appear to be at work? Can one apply the industry life cycle to the beer industry? The beer industry has become Oligopolistic because out of the competition there are only few major brewers that have dominated the market. Some of the factors that helped that this industry became oligopolistic include: economics of scale, takeovers, mergers, technology advancements, barriers of entry. Since in the Beer industry few large firms produce large quantities of homogeneous or differentiated products these are the firms that dominate the market. The industry became oligopolistic forcing hundreds of brewers to close/merge because in this industry economics of scale appear to be extremely important; large firms would be more efficient at productions than small ones. The capital requirements in this industry are high. Additionally, barriers of entry to this industry are high (control over raw material, patents). Moreover, there is a tremendous brand loyalty in this market. Some of the processes that appear to be at work are reaping the benefits of cost reductions from merging. One cannot apply the industry life cycle to the beer industry (basic necessity) because this is a product that may never enter a decline phase. Obsolescence is very unlikely in this industry. 3. What does this article tell us about the nature of 5 forces in the US beer industry? Have these forces become more benevolent or instead more challenging from the standpoint of industry incumbents? The five forces tell us that: Barriers of entry: The barriers of entry into this industry are high. Control over raw material and patents exist. Additionally the market is well known by consumers and it is unlikely that they will change their preferences. The buyers have high power, even though there are few players in the beer industry, once consumers chooses and like a beer then it is very likely that the consumers are going to be Brand Loyal. Competition: competition is high; the few players are always looking to take away consumers from its competitors to become bigger. Substitutes: Drinking products other than beer such other alcoholic drinks. Suppliers: The suppliers of beer ingredients already have strong relationships with big Beer companies. Incumbents probably wont get good deals and suppliers probably will not want to have small accounts. After the 5 forces analysis, I have concluded that the market is more challenging from the standpoint of industry incumbents. 4. How does the international reach of Anheuser-Bush InBev help the company? Is international diversification a major or minor benefit in the current environment. International reach of Anheuser-Bush has a major benefit since the company and its products become known internationally. In the article it was mentioned that Brazil is the second largest market after U. S and that earnings per share are expected to grow from 89 cents versus 72 cents last year. This is definitely a plus for the company.