Consumer Demand and Market Power on Product-differentiated Beers and Beer-flavored Beverages

Abstract

The objective of this study is to elicit consumers' preferences and firms' pricing behavior for beers and beer-flavored beverages in Japan. To estimate price elasticities and markups for brands of the beverages, the Berry, Levinsohn, and Pakes (BLP) model of product differentiation and consumer preference heterogeneity was applied to data from 34 brands of beers and beer-flavored beverages purchased in major retail stores in Japan from April 2008 to March 2014. The estimation results indicated that products in the same category were likely to be substitutes, brands categorized as new genre beer produced by each company were close substitutes, and increase in prices of regular beer brands lead to growth in the consumption of new genre beers and beer-flavored beverages. Price-cost margins were found to be higher in brands of beer and low-malt beer compared to those of new genre beer and beer-flavored beverages. The market power of each producer reflected its strategy for the production share for each beer category.