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Monday, January 09, 2017

Winner-Take-All Markets

One of the pleasures of doing a podcast with an economist is that occasionally he surprises you. We have long planned to do an episode on the the value of superstar brewers--those folks who have created some of the indelible beers that sell hundreds of thousands of barrels of beer each year. We used local legend John Harris as our example, who brewed some of the first beers at the McMenamins empire, then the classic line at Deschutes, went on to elevate Full Sail, and finally founded his own brewery Ecliptic. How would we calculate his value?

That's an interesting question on its face, but Patrick introduced me to a fascinating concept through which to look at this question: winner-take-all markets. These are situations in which the money flows disproportionately to the winners. Patrick gave a couple of examples, starting with sports. You have thousands of exceptional athletes playing at the collegiate level, but only several hundred playing in the NBA. The talent difference between an excellent college player and a great is slight, but the rewards are gigantic. In music we see a similar phenomenon; artists like Adele earn tens of millions while working bands have to drag their equipment around the countryside to scrape out a living.

In beer, there's a similar phenomenon. Even within craft, the top six percent of breweries make 84% of the beer (The overall beer market is even more top-heavy.)  So the question: is beer a winner-take-all-market? The question of the brewer's value is a subsequent one, and also fascinating. I didn't have a whole lot to do with making this conversation interesting, but interesting it was. To learn the answers, of course, you have to listen to the pod (find on iTunes and Google Play as well). We also do a bit of year-end wrap-up and start-of-the-year forecasting.

Incidentally, we refer to a video clip in the podcast in which John recounts his start as a brewer. It was filmed at the celebration of his 30 years as a brewer last spring, and if you freeze frame the picture during the cheers at the end, you'll see some of the working brewers John inspired. And as a charming bonus, the young woman behind him is his daughter.

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