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Old 12-12-2012, 09:06 PM   #531
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Value is extremely subjective, if I think a $14 4 pack is the best beer in the world then its a great value, if its just OK its a rip off. But to price a 4.7% wheat beer the same as a 9% IIPA when the price of ingredients are 1/3 the cost is crazy, and a bad value (to me).

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Old 12-12-2012, 09:11 PM   #532
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Originally Posted by pm5k00 View Post
Value is extremely subjective, if I think a $14 4 pack is the best beer in the world then its a great value, if its just OK its a rip off. But to price a 4.7% wheat beer the same as a 9% IIPA when the price of ingredients are 1/3 the cost is crazy, and a bad value (to me).
Unless the profit margin of the wheat beer is subsidizing a smaller profit margin on the IIPA.
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Old 12-12-2012, 09:18 PM   #533
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Quote:
Originally Posted by jerrodm

Not to be a dick, but that's not exactly how "economics" works. At a competitive market equilibrium (which I think you can make a case for the BMC market being close to), the price of a good IS directly tied to the cost of production; specifically, price will equal the long-run marginal cost of production, which also equals the long-run average cost of production. You're right in your point that price is also tied to demand (the reason economists love markets so much is that they're a tool for equating supply and demand), but that doesn't change the fact that the price charged for a good is directly tied to the cost required to make it.

Your example about saffron beer is a little bit of a different case, since that would be a differentiated good (as most craft brews are) that's only produced by one place--for example, only one brewery makes Pliny the Elder, and no one else can really copy it. In that case, price doesn't need to be equal to marginal cost, but it's still connected to it. It's a little more complicated but I'm sure you're not that interested in the explanation.

All that to say that yes, all else equal, beers that require costlier inputs (like those with higher ABV) should cost more. According to economics.
You have it backwards. A business can afford to sell a product for the marginal cost to make it so they will continue to do it. But if their costs suddenly increase (hop prices go up) they can't just charge more, they will stop making it or go out of business. You seem to think every consumer is standing there in aisles looking at products and quickly summing the manufacturing costs to see if they should buy the product.

Brewers making higher ABV beers know people will pay more for them so they make them. They don't just make any beer they want and force people to buy it. Again, if they could they'd increase their costs to charge more. Yet they are always working to lower their costs. Are they idiots?

Btw, saying "...but I'm sure you're not that interested in the explanation" is being a dick.
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Old 12-12-2012, 09:21 PM   #534
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Imported beer isn't priced higher because it costs more to import it. It's imported because people here are willing to pay more for it. And we'll see that change as people realize domestic beer is worth paying more for. Imported beer will drop in price but many on this thread will conclude that shipping suddenly got cheaper. And if the value of imported beer drops below the cost to make and ship it then imported beer will largely disappear and people here will conclude that ships don't exist anymore.

This thread could appear in an economics forum titled "Funny things you hear people say about economics". ;-)
Troy, this just isn't correct. Your example about imported beer provides a good example of why. If imported beer consistently commanded a higher price in the market than the opportunity cost of producing it, import breweries would consistently produce what we economists think of as "economic profit" (distinguished from financial profit, in that economic profit is returns to a given activity that are greater than what could be gained by using the resources used in that activity in the next best alternative). In other words, they'd be making more profit than everyone else, adjusting for risk and any other factors that affect the return on investment. If that were the case, more people would want to get involved in brewing in Germany, Belgium and wherever else, drawn by the inordinate profits of those brewers. Eventually, more producers would enter the market, and when supply increases, all else equal, price declines. In the long run, price would equilibrate where the marginal benefit (the benefit experienced on the last unit of beer bought) was equal to its marginal cost (the cost of the resources used to produce that last unit). And both of those would be equal to the price.

So there's no reason to believe that import breweries command higher prices just because people "like them more." And it is certainly the case that the resources required to produce a German/Czech/Dutch/Belgian/British beer and bring it to your store is greater on average than what is required to do so for an American beer. And yes, that does in fact cause the price to be higher. It's not part of some grand conspiracy, and it's not due to how stupid Americans are, thinking imports are better than domestics.

You're right, of course, that if demand for imported beer decreased relative to demand for domestic beer, it would have less market share. But that doesn't mean that they cost the same to produce for the US market...on the contrary, a smaller number of people who are still willing to buy imported beer even though it costs more will still do so, and the total quantity in the market will decrease (but not disappear).

I'm really not trying to be a douche about this, but you sound so certain of yourself and yet you're quite wrong...
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Old 12-12-2012, 09:23 PM   #535
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Btw, saying "...but I'm sure you're not that interested in the explanation" is being a dick.
OK, I just didn't think you wanted a big soliloquy about how under monopoly conditions the equilibrium point is reached where marginal revenue is equal to marginal cost, and price is a function of demand but not supply...do you want me to attach graphs and show why this is the case?

Seriously, I'm trying to be helpful, but the chip on your shoulder makes it a little hard to do so in a good spirit.
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For they garner the succulent berries of the hop and mass and sift and bruise and brew them and they mix therewith sour juices and bring the must to the sacred fire and cease not night or day from their toil, those cunning brothers, lords of the vat. -James Joyce

On deck: Orange Cranberry Wit, Dusseldorf Altbier
Primary: Belgian Partigyle Tripel/Saison, 1/1
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Bottles: Northern Brown Ale, 1/10; English IPA, 12/31; Cider, 12/9; White House Honey Ale AG, 12/9;
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Old 12-12-2012, 09:32 PM   #536
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where'd the funny beer things go?

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Old 12-12-2012, 09:33 PM   #537
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Originally Posted by troyh View Post
You have it backwards. A business can afford to sell a product for the marginal cost to make it so they will continue to do it. But if their costs suddenly increase (hop prices go up) they can't just charge more, they will stop making it or go out of business. You seem to think every consumer is standing there in aisles looking at products and quickly summing the manufacturing costs to see if they should buy the product.

Brewers making higher ABV beers know people will pay more for them so they make them. They don't just make any beer they want and force people to buy it. Again, if they could they'd increase their costs to charge more. Yet they are always working to lower their costs. Are they idiots?

Btw, saying "...but I'm sure you're not that interested in the explanation" is being a dick.
Let's take your example of an increase in a major input--hops.

If that happens, the marginal cost curves will go up for all breweries that use the input. This would cause the supply curve for beer to shift upwards, reducing the quantity of beer that is sold at equilibrium. And the price will increase, unless demand for beer is completely inelastic, which there's no reason to believe that it is. The new equilibrium price (like the old price before it) will be where price is equal to the marginal cost of producing the last unit of beer, which is simultaneously equal to the marginal benefit of the last consumer.

I drew some quick graphs that illustrate the case, sorry couldn't figure out how to put them directly in the post. One is before the price increase, the other is after the price increase. Hope that clears it up for you.
untitled.jpg   untitled2.jpg  
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For they garner the succulent berries of the hop and mass and sift and bruise and brew them and they mix therewith sour juices and bring the must to the sacred fire and cease not night or day from their toil, those cunning brothers, lords of the vat. -James Joyce

On deck: Orange Cranberry Wit, Dusseldorf Altbier
Primary: Belgian Partigyle Tripel/Saison, 1/1
Secondary: none
Bottles: Northern Brown Ale, 1/10; English IPA, 12/31; Cider, 12/9; White House Honey Ale AG, 12/9;
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Old 12-12-2012, 09:34 PM   #538
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Oh never mind they got in there anyway.

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For they garner the succulent berries of the hop and mass and sift and bruise and brew them and they mix therewith sour juices and bring the must to the sacred fire and cease not night or day from their toil, those cunning brothers, lords of the vat. -James Joyce

On deck: Orange Cranberry Wit, Dusseldorf Altbier
Primary: Belgian Partigyle Tripel/Saison, 1/1
Secondary: none
Bottles: Northern Brown Ale, 1/10; English IPA, 12/31; Cider, 12/9; White House Honey Ale AG, 12/9;
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Old 12-12-2012, 09:35 PM   #539
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Sorry everyone else I know this is waaay less fun and interesting for you all than it is for me--I do this for a living, and I love it. I was trying not to go into the weeds on this. My New Year's resolution is going to be to not argue with anyone on HBT, no matter how wrong I think they are, for at least a month.

But I don't have to start that until Jan. 1!

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For they garner the succulent berries of the hop and mass and sift and bruise and brew them and they mix therewith sour juices and bring the must to the sacred fire and cease not night or day from their toil, those cunning brothers, lords of the vat. -James Joyce

On deck: Orange Cranberry Wit, Dusseldorf Altbier
Primary: Belgian Partigyle Tripel/Saison, 1/1
Secondary: none
Bottles: Northern Brown Ale, 1/10; English IPA, 12/31; Cider, 12/9; White House Honey Ale AG, 12/9;
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Old 12-12-2012, 09:37 PM   #540
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Funniest thing I heard about beer today?

2 guys bitttching about the economics and pricing of beer and distribution. We all make our own so who cares!?

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