US beer drinkers are overpaying for their booze by $500 million a year

Two brewing companies, Anheuser-Busch InBev and Molson Coors, account for two-thirds of the $94.1 billion beer market in the US. The lack of competition is one of the factors forcing beer drinkers to pay more for their beer, a new Treasury department report has found.

Collectively, beer drinkers pay up to $478 million per year more than they should, according to the report [PDF], which was commissioned as part of the Biden administration’s executive order, issued last July, to assess the state of competitiveness in many sectors including the beer, wine, and spirits market.

“States might explore changes [in liquor laws] to eliminate anticompetitive effects and to bolster competition,” the report recommends. “Additionally, the [Federal Trade Commission] and the Antitrust Division should continue their antitrust scrutiny of the alcohol markets.”

Anheuser-Busch InBev, which earned $47 billion in 2020, owns a vast stable of brands: popular beers such as Budweiser, Corona, and Stella Artois; international brands like Leffe and Hoegaarden; and smaller brands such as Goose Island and Modelo. Molson Coors, similarly, owns widely consumed beers like Coors, Blue Moon, and Miller High Life, but also niche brands such as Franciscan Well and Singha. These companies’ brands overwhelmingly dominate retail sales in the US. The Treasury department report described the US beer market as “highly concentrated under the standards that the federal antitrust agencies use to assess market concentration.”

A Prohibition-era law is making beer more expensive

The lopsided nature of the sector works in conjunction with state “post-and-hold” laws to raise prices, the Treasury department report argues. The laws are still on the books in many states, even though they’re a relic of the Prohibition era, intended to cut down alcohol consumption by keeping prices high. According to these laws, alcohol wholesalers must submit a list of future prices to the state—posting these prices in advance and then holding them for a set period of time, usually 30 days.

As a result, wholesalers are often reluctant to cut prices, because such cuts become irreversible for the duration of the holding period. This collective reluctance ends up setting a price floor that no one will go under. Further, the public visibility of these posted prices make it possible for wholesalers to coordinate their pricing, the Treasury report said—a point that other economists have made in the past. “Economic theory would suggest that [post-and-hold] laws reduce unilateral incentives for distributors to reduce prices and may facilitate tacit or explicit collusion, both to the detriment of consumers,” James Cooper and Joshua Wright wrote in 2010.

Cooper and Wright showed that post-and-hold laws do have their intended effect, depressing liquor consumption by 2-8%. Overall, beer production in the US has been on a slight decline over the past decade—not because of these laws, which after all have been in place for decades, but because of a shift towards healthier living and lower alcohol consumption by younger Americans.

Not all economists agree with the principle that post-and-hold laws yield increased prices, though. Henry Saffer and Mark Gehrsitz, in a paper published by the National Bureau of Economic Research, discovered “no persuasive evidence that the laws increase the prices of these products.” If higher prices were the goal, they wrote, that could be achieved in a fairer and more effective manner by levying more excise taxes.

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