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Post-merger branding strategies and market power in the Brazilian brewing industry

Malú N.P.S. Cerqueira (Department of Economics, Universidade Federal de São Carlos, Sorocaba, Brazil)
Danilo R.D. Aguiar (Department of Economics, Universidade Federal de São Carlos, Sorocaba, Brazil)
Adelson Martins Figueiredo (Department of Economics, Universidade Federal de São Carlos, Sorocaba, Brazil)

Journal of Agribusiness in Developing and Emerging Economies

ISSN: 2044-0839

Article publication date: 13 July 2020

Issue publication date: 6 July 2021

181

Abstract

Purpose

The purpose of this paper is to investigate firm strategies and the exertion of market power in the brewing sector in Brazil following a merger between the two largest brewers (Brahma and Antarctica) that created Ambev and given that the existing literature is inconclusive on this subject

Design/methodology/approach

In this study the authors apply cointegration analysis to price series of beer brands. The authors use the reduced form vector error correction (VEC) model to measure the price responses of beer brands in terms of direction, magnitude and speed. The authors use monthly retail prices for the primary brands of beer in the city of São Paulo, Brazil's largest consumer market. Specifically, the authors use two sets of retail prices, one from bars (the main point of beer sales, with roughly 50% of market share) and another from supermarkets. The series range from 1994 to 2014, depending on the brand.

Findings

This study indicates that Ambev's two major brands (Skol and Brahma) behave as market leaders, while its third brand (Antarctica) has been used to challenge the low-price competitor (Nova Schin). The authors also found evidence that the pricing policies of Brahma and Antarctica have changed toward cooperation following the creation of Ambev.

Research limitations/implications

The main limitation of this article is that the authors only had access to retailer data. As the merger involved brewers, the authors would ideally use manufacturer beer prices in their econometric analysis. However, the consistency of our results suggests that retailers have been passively transmitting brand strategies launched at a manufacturer level.

Social implications

As the dominant firm created following the merger of the two largest brewers appears to use one of its brand to restrict entry of competitors and the premium brands to enjoy high profits, consumers tend to be harmed by high beer prices and lack of options. Furthermore, small and medium-size companies cannot grow due to entry barriers created by the dominant firm.

Originality/value

This paper is the first to apply cointegration analysis to examine the effect of mergers on pricing strategies. The robustness of this study suggests that this approach could be used for antitrust agencies to monitor post-merger strategies.

Keywords

Acknowledgements

The authors thank to Coordination for Improvement of Graduates of Brazilian Ministry of Education (Capes/MEC) for financial support.Funding: This study was financed in part by the Coordenação de Aperfeiçoamento de Pessoal de Nível Superior - Brasil (CAPES) - Finance Code 001.

Citation

Cerqueira, M.N.P.S., Aguiar, D.R.D. and Figueiredo, A.M. (2021), "Post-merger branding strategies and market power in the Brazilian brewing industry", Journal of Agribusiness in Developing and Emerging Economies, Vol. 11 No. 4, pp. 329-344. https://doi.org/10.1108/JADEE-09-2019-0160

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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