Daniel Toro-Gonzalez, Jill J. McCluskey and Ron C. Mittelhammer
Although mass producers’ market share still represents more than 95% of sales, the trend of consumers switching from traditional to craft beer seems irreversible. How strong are the consumer’s preferences about this new type of beers? Given that brewing companies are subject to different policy regulations, especially taxes, the knowledge about consumer’s preferences is relevant to formulate more informed policy decisions to the industry. The aim of this paper is to estimate price, income and substitution elasticity of craft beers with respect to mass produced beers. We verify the hypothesis of that beer is a normal good with an inelastic demand with respect to prices and higher income elasticity for high end beers (craft +Import) compared to mass-produced beers. We also find that the elasticity of substitution between categories of beer is almost zero, which may imply no substitution between categories of beer because consumers do not return when they move their consumption from one type of beer to another.