Friday, June 26, 2009

Beeronomics: Peak Load Pricing

Pelican Brewery in Pacific City, Oregon is among the very best Oregon breweries (as evidenced by their many, many national and international awards) and yet it is very hard to find their beers in the store. This something that I wondered about: why aren't they more available in Portland (and other parts of Oregon)?

An answer immediately suggests itself when one visits the brewery. It is located at a wonderful spot on the coast, but Pacific City is a little out of the way as it is off US 101 a bit. It is also on the Oregon coast which is wonderful in summer but can in winter. One expects then that they have a familiar problem in economics: a fixed supply capacity (the brewery) and a variable demand. Electric utilities are the most common example given of this: there is high demand during the day and low demand overnight. For Pelican, one imagines that they sell lots of beer during the summer and have a lot of excess capacity in the winter. So they could increase capacity to sell more bottles in Portland but this would potentially exacerbate the overcapacity in the winter (or may not if demand for bottles is seasonal in the other way).

The economics answer to this problem is what is known as peak-load pricing, an extra charge for buying at a peak time. Perhaps Pelican should charge $6 for pints in May-October and $3 in November-April, for example. This would even out the demand during these periods and help solve the excess capacity problem.

Okay, so perhaps this is a bit fanciful, but I sure hope to find more Pelican Beer in Portland, it is great stuff.

Update: I was going to write another post about Full Sails new Session Black following John Foyston's great article in the Oregonian, but Beervana beat me to it and has an analysis that is pretty close to what I was going to write. Check it out.

Update 2: John Foyston has posted the original piece on Full Sail, intended for the business section, which is even more fascinating in terms of the business of beer.


Dann Cutter said...

In regards to Pelican, I presume the assumption of demand is based on summer weather being more appealing to tourists - it rained yesterday June 26th (and most of the last week) and is sunny almost every xmas here, so tourists clearly have imperfect information. :-)

More seriously though, Jack over at Rogue once told me the amount extra he has to pay per bottle to brew out here on the coast and get his product to the valley - I expect it is higher for Pelican as well, as Rogue is at least on Hwy 20/Hwy 101.

I wonder however, given that they ship and most varieties are not constrained in the middle of summer, if what we are seeing is more of an imperfect distribution issue. It is an upscale product, with heavy competition, and low retail margins. I would imagine that if demand were higher, more could be shipped, but given the niche market, I suspect that Portland availability is not constrained by anything other than simple supply and demand, which due to their remote though great location, is a factor of marketing and awareness given the apparent quality. 'Course, that is not nearly as economically educating as 'peak load', but what can you do.

I personally, somewhat changing the topic, was disappointed by the beer tax failure - as though I enjoy the tremendous variety, the saturation of small breweries has created a market marginalization, such that good brews are often given too small a distribution to catch on, and thus less overall quality beers are, on average, available via retail. This averaging seems to marginalize even the effect of consumer interest in good beers, as they sell out, forcing poorer beers to also sell well (face it, you're gunna buy a micro if you are looking) which then keeps the market unfairly leveled. A small increase might have set some of that lower end competition aside. (i.e. as price increase, willingness to buy a perviously mediocre micro would decrease)

Anonymous said...

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