Friday, January 30, 2009

Why is Beer not Priced According to Cost?

Over on the Beervana blog, Jeff asks an interesting question about beer prices. No doubt his readers will flub the economics badly, so I expect astute economic analysis here.

The question is this: why do we typically see beers of the same brand all priced the same even though it typically costs a more to produce some beers than others, like an IPA versus a Pale Ale?

Part of this can be explained by supply and demand, but I don't think demand systematically falls the more ingredients a beer uses (then again, maybe it does - as you make more and more flavorful beers, perhaps the demand curve falls as fewer and fewer people like them). So there must be something about brand and consumer psychology. My guess is that stores have found that if one Deschutes beer (Inversion IPA) is priced above others (Mirror Pond), few people buy the higher priced one.


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