The Social Costs of Packaging Competition in the Beer and Soft Drink Industries

• Date: 01 December 1975
• DOI: 10.1177/0003603X7502000407
• Author: Kenneth C. Fraundorf
• Published date: 01 December 1975
• Subject Matter: Article

THE

SOCIAL

COSTS OF PACKAGING

COMPETITION

IN

THE

BEER

AND

SOFT

DRINK

INDUSTRIES

by

KENNETH

C.

FRAUNDORF·

I

That

the presence of social costs can

result

in serious mis-

allocation of resources is

familiar

to all economists today.

That

innovation can often give rise to such

costs-witness,

for

example, the recent automobile horsepower race or the

case of

DDT-is

equally familiar. And

that

the

structure

of

an

industry

bears

acausal relationship to

its

innovation per-

formance is a proposition on which most students of indus-

trial

organization can agree, though not without a

great

deal

of disagreement about the exact

nature

of

that

relationship.

This

is an

attempt

to wed those three propositions in a

study

of one such cost-shifting innovation, non-returnable

beverage packaging. The hypothesis is

that

the changing

structure

of the

beer

and

soft

drink

industries

has borne a

close relationship to

(and

responsibility

for)

the replace-

ment of returnable bottles by one-way containers, which

has

in

turn

contributed to the mounting solid-waste problems

which our cities face

and

to a more

littered

America.

Our

basic hypothesis about the relationship between in-

dustrial

structure

and

the intensity of non-price competi-

tion, of which packaging innovation is

part,

is

drawn

from

the work of Douglas

Greer.'

Greer, who confined his

study

to the intensity of advertising, found

that

aquadratic rela-

tionship (of the form shown below) best answered the adver-

•Assistant Professor, Oregon State University, Corvallis, Oregon.

AUTHOR'S

NOTE:

This

paper

is taken from the author's doctoral

dissertation completed at Cornell University; accordingly, the

author

would like to acknowledge

the

many helpful suggestions of

Alfred

E.

Kahn

and

Erwin

A. Blackstone.

1Douglas Greer, "Advertising

and

Market

Concentration,"

Southern Economic Journal, July, 1971, pp. 19-32.

803

804

100

Concentration

o

THE

ANTITRUST

BULLETIN

L

Advertising/Sales

100

tising-concentration question; moreover, Greer, on both a

priori

and

empirical grounds, emphasized the simultaneity

of the relationship.

It

is possible to extend Greer's propo-

sition to other forms of non-price competition," Thus, for

our purposes, the behavioral variable in the relationship

pictured in the above figure will be packaging competition."

As Sections

II

and

III

below, show, this modification of

Greer's hypothesis does offer a viable explanation of pack-

aging changes in the beer

and

soft drink industries.

a This is because the various forms of non-price competition

such as advertising, product variation (including packaging) and

other promotional expenditures are usually complementary (for em-

pirical evidence, see Dale Houghton, "Marketing Costs:

What

Ratio

to Salesf" Printers' Ink, Feb. 1, 1957, pp. 54-55). However, this

may not always be the case as Section

Ill's

discussion of the soft

drink

industry

notes.

ePackaging competition in the beer and soft

drink

industries

has taken many forms, including containers of various sizes, shapes,

materials,

and

with easy-opening lids or crowns,

but

it

is the non-

returnable dimension of such packaging changes

that

will be the

subject of the cost estimates to follow (since such changes have

the greatest solid-waste impact).