Tuesday, October 9, 2007

But What About the Herfindahl Index?

The big news of the day 'round these parts is that American brewing giants Miller and Coors will be joining forces to combat the evil empire, Anheuser Busch. When I was a kid I remember asking my dad a lot of questions about business. And about the beer he drank (Miller). I was a weird kid. Anyway, I remember him telling me that Anheuser Busch had about a 50% market share in America while Miller had about a 20% market share and Coors had about a 10% market share (these numbers ave been substantially rounded). So even if Miller and Coors combined, Busch would still be the dominant player when it comes to watery American beer. This was an actual dinner conversation that took place during my youth:

Me: But Dad, wouldn't they be more competitive with Busch if they did combine?

Dad: Actually Danny, according to the government, they wouldn't be allowed to combine because the government would figure out the Herfindahl Index and find the merger to be anti-competitive. Currently, the Herfindahl Index would look like this [writing: (.5 * .5) + (.2 * .2) + (.1 * .1) = .29] But if Miller and Coors merged, the Herfindahl index would look like this [writing: (.5 * .5) + (.3 * .3) = .34] When the concentration is already over .1, any merger that would raise it more than .025, is presumed to be anti-competitive.

Me: Oh, so because there are already three major companies, it has a high concentration as it is. And since the market share would be concentrated into fewer companies, it's not allowed?

Mom: How did my family end up like this?

So now I'm confused. The illustration I've always used to remember how the Herfindahl Index works is happening, and there doesn't seem to be a problem with it. I better go call my dad...

In other beer news, an "editorial" in the paper last week "argued" that Milwaukee Should Have a First-class Beer Museum. I whole-heartedly agree. Duh. Apparently, there's not one, but two competing groups attempting to get the ball rolling on a beer museum in Milwaukee.

Two groups in the city are working to create a museum. The Museum of Beer & Brewing, headed by Jim Haertel, hopes to open a museum in one of the buildings he owns at the old Pabst Brewing works. The other group, the Milwaukee Beer Museum, has a storefront on S. 5th St. Both groups have memorabilia and a dream. But it will take a major backer to create such a museum.

Each of these groups have a museum of sorts already, but they are both trying to get the funds to make their beer museums "world-class." I salute them both and wish them luck in completing that task. From the Milwaukee Beer Museum's mission statement:

The Milwaukee Beer Museum is a collecting museum and educational organization dedicated to preserving and promoting the rich history and positive cultural impact of beer and the brewing arts.

The positive cultural impact of beer. Awesome. I'm on board. Where can I make a donation? Also, why don't these two companies combine and make one world class beer museum together. If Miller and Coors can do it, why can't The Museum of Beer and Brewing and the Milwaukee Beer Museum? I'd even calculate the Herfindahl Index for them.


PaulNoonan said...

Nice work. It's actually pretty amazing that there isn't a beer museum in Milwaukee. Of course, they should probably serve beer too. First one with a liquor license probably wins.

Bruce Dierbeck said...

Beer. Cheese. Fonz. And serial killers. That's the order of what people think of when they hear I'm from Wisconsin.

That's why I think a beer museum is a good idea. People need something to visit. The biggest little city. Mount Rushmore. The space needle. The world's largest ball of twine.

As much as I dig the Fonz, I think his statue should come third. After beer and cheese. But definitely before the serial killer statute.

karen said...

Great post. I like the dialog between you and your dad.

I'm all for a beer museum too. Why the hell hasn't that happened yet? Actually I was told by the "right people" that it will happen. Not yet, but soon enough.

Danny from Milwaukee said...

I wonder if there's any way that a museum can get around getting a liquor license since, like, drinking there would be for educational purposes.

I think most of us would agree with you in ranking The Fonz somewhere between beer and serial killers in the category of "things we like about Wisconsin."

Sadly, the right people are usually wrong.