DYNAMIC GAINS AND STATIC LOSSES IN OLIGOPOLY: EVIDENCE FROM THE BEER INDUSTRY

The paper provides a new perspective on the estimate of the welfare losses due to oligopoly. I argue that the conventional analysis of monopoly/oligopoly welfare losses can be misleading. If causation runs from investment in new technology to increased concentration, dynamic gains from innovation should be taken into account for a fuller analysis of welfare losses. I use beer-industry data to demonstrate that technological changes Granger-cause beer prices, and beer prices Granger-cause the Herfindahl index. I then estimate the dynamic gains to consumers in the beer industry and find these gains to be impressive relative to conventional static losses. ( JEL L10, L13)