There’s been a fair amount of discussion and hand-wringing about the rising costs of limited release beers. It seems craft breweries are producing more and more special releases, collaborations, and other collectible beers, at prices that seem to be going nowhere but up. I recently found a paper presented at the First Beeronomics Conference held in May of 2009 which suggests this trend will continue.
In his paper entitled “The Price of Unique”, economist Phil Armour studied the prices of Stone Brewing’s Vertical Epic series on EBay. By correlating the mean winning bids for Vertical Epic bottles transacted on EBay as a function of the volume of each beer produced by Stone Brewing in the series, Armour calculated an economic quantity called the Own Price Elasticity of beer in the Vertical Epic Series, and compared it to data found in rare wine auctions.
Own Price Elasticity describes the change in the price of an item caused by a change of its available quantity. Generally, as more of an item is produced, it’s price goes down. What Own Price Elasticity determines is how dependent is the price of the product to its supply. If an item becomes rare, is the price bid up to incredibly high levels by people desperate for it? Or does the higher price quickly drive people out of the bidding? The higher the Own Price Elasticity is, the more likely people will pay high prices for a scarce item. Water is sometimes considered highly price elastic since when it is rare, people will still pay high prices for it to survive, while sugar is considered highly inelastic, since people historically turns to other sweeteners like honey, molasses or corn syrup when the price of sugar increases even marginally.
Armour found that the Price Elasticity of the Vertical Epic Series was higher than in auctions for rare, first growth Bordeaux wines. What this suggests is that in the case of these rare wines auctions, bidders were more likely to decline to bid on as the price increased, and turn to different vintages, while those coveting the Vertical Epic series on EBay decided they had fewer alternatives, and therefore, continued bid up the prices higher.
From my vantage point, it seems that as the craft brewing industry grows, more potential buyers of rare releases enter the market, and thus, more people are available to bid up the prices in the marketplace. Since these special releases sell out quickly, and are often spotted on EBay selling at above the retail price, breweries are simply motivated to brew more of them, and sell them at a higher price, simply because the market allows them to do so. Both anecdotal evidence and Armour’s study suggest the market for special collectible beer releases is not saturated, and so we can expect breweries to release more of these special rare brews and command higher prices for them. To my mind, it remains to be seen if and when the craft beer market becomes over saturated with these beers.