In the brewing industry, barriers to entry were high. Fixed costs increased as a percentage of revenue necessitating brewers to have higher production capacities/minimal efficient production scale to achieve economies of scale. According to the case, if a brewery were to double its scale they could cut capitol costs by 25%, whereas halving it would increase capitol costs by 33%. Many companies chose to expand and operate several breweries apiece. Multi-plant configurations reduced the risks of catastrophic shutdowns due to such things as strikes, fire or explosions. It also allowed for production of low-volume packages, while also allowing brewers to absorb the output repercussions of a large new brewery over several existing ones.
The rivalry among existing competitors was high as the number of brewers making less than one million barrels per year decreased from 90% in 1959 to 45% in 1983. Furthermore, since the domestic beer consumption was flat, rivalry among brewers was intensified because any gains in sales by one brewer resulted at the expense of its competitor rather than through growth of the overall market.
Other factors that decreased the number of brewing firms include the increase in number of baby-boomers. The brewing industry's capacity utilization had been in the 60% range but this changed dramatically in the 1960's and 1970's. Large brewing companies reacted to this new demand by adding relatively large breweries and sold them quickly, which led to smaller breweries being closed.
Another factor that decreased the number of small brewers was that wholesalers who supplied to off-premise outlets (supermarkets, grocery and liquor stores) usually carried only one brand. This caused difficulty for competitors, as they were unable ...