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Trouble Brewing? Impact of Mandated Vertical Restraints on Craft Brewery Entry and Production

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Document pages: 39 pages

Abstract: This paper empirically estimates how U.S. craft brewers’ entry and production decisions responded to mandated vertical restraints. I examine beer franchise laws and their interaction with restrictions on vertical integration between manufacturing and wholesaling. The effects are identified by exploiting variation in policies across states and time between 1980 and 2016. I find that beer franchise laws significantly reduced craft brewery entry and growth. The effects are largest in states that place restrictions on brewery wholesaler integration. The findings in this paper indicate that the mandated vertical restraints, which were legislated to protect wholesalers from opportunism from brewers with large market power, had the effect of encouraging opportunism from wholesalers and inhibited the growth of smaller firms in the industry.

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