Consolidation is sweeping consumer product industries around the world: the top four players in soft drinks, for example, share almost 80 percent of the market, and Coca-Cola alone commands nearly 50 percent (Exhibit 1). It might be reasonable to think that the beer industry would tell a similar story. Reasonable, perhaps, but wrong.

In fact, beer is surprisingly local. Until the middle of this century, the short shelf life and difficulty of transporting beer meant that it could be sold only locally. Things have changed, but history has left its legacy. Research suggests that consumers may be getting somewhat more adventurous, but even where imports are readily available, most consumers in most countries continue to buy local brands produced by local brewers and sold through local stores, pubs, and restaurants at prices that vary widely in localities around the globe. As a result, the beer industry is a collection of tiny players. The top four command just a 20 percent share of the world market, and the largest—the US brewer Anheuser-Busch—makes more than 85 percent of its sales in its home market.

Although no brewer comes close to dominating the world, national markets are oligopolies. In most countries, the...