Exploring the Effects of Regulation on Montana’s Craft Brewers
C. Graham Austin, Ph.D, MA, BA, Assistant Professor of Marketing
Craft brewing is an engine of economic growth and community revitalization in Montana, but it exists in a regulatory and competitive environment that may stifle the industry’s full economic capacity. Montana brewers’ relationships with tavern owners has been described as “acrimonious” (Demay 2015), a conflict serious enough to earn national business coverage (e.g., the Associated Press and New York Times covered the story in 2013). The result is a suite of statewide regulations designed to limit breweries’ ability to sell beer directly to customers. This project will explore (1) craft brewers’ perceptions of the legal regulations on the industry, and (2) the impact these perceptions have on business decision-making. I propose taking a qualitative approach to explore brewers’ attitudes and behaviors, and using a behavioral economics framework to explain results that may not conform to mainstream economic theory.
The goal of this project is to understand how craft brewers (1) perceive, and (2) respond to state, local, and federal regulations specifically aimed at the craft brewing industry. Montana is home to a thriving craft brewing industry, yet the state imposes strict regulations that limit the operation of these businesses (e.g., ability to operate a tasting room, limits on tasting room hours, quantities sold, sales promotions, distribution, licensing; see MCA 2017 16-3).
A rational assumption is that stringent regulations such as these hinder small business operations. Sample quotes from Montana brewery customers on beeradvocate.com include, “They are really handicapped with the Montana law, having to close at 8pm,” “You can only get 3 beers per visit and the hours are limited per some crazy MT brewery law,” and, “There is what I think to be a misconception about serving food in breweries here.”
In policy discussions, these types of regulations are often framed as critical elements in zero-sum competitions between different types of businesses in a shared marketspace. In this case, media coverage portrays Montana’s craft brewers and bar and tavern owners as adversaries; each side claims to be unfairly disadvantaged by the laws (e.g., Healy 2013). However, it is unclear how onerous craft brewers actually perceive these laws to be. A press release from the Montana Brewers Association about a production-capacity law passed in 2017 quotes a brewery owner as saying, “This bill removes a barrier that has hindered our growth and limited our ability to meet demand for our beer in Montana and beyond” (MBA 2017). On the other hand, a news story about specific tasting room regulations noted, “Despite Montana’s different restrictions, owners of local craft breweries don’t seem too bothered by them” (Gillette 2014).
Interviews I conducted for another craft brewing research project support the idea that while brewers feel compelled, on principle, to publicly push back against any restrictions that restrict their ability to meet market demand, in practice they do not necessarily find most of them overly burdensome, and in some cases even welcome them. Given this departure from what mainstream economic theory would predict, this study is designed to formally explore craft brewers’ perceptions of these regulations within a behavioral economics framework, and how these perceptions affect business decision-making. Because this is an inductive qualitative study, the analysis will generate rather than test perceptual variables and related hypotheses.
Significance of the Project
Policies based on empirical evidence are far more justifiable than those whose logic relies on naïve economic theory. The stated rationale behind the state’s regulations on breweries is that they ensure fair competition while stimulating economic growth (Deedy 2015, MBA 2017). This project will result in a case study that enables policy makers to better understand the perceptual and practical effects of industry-specific regulations, thus helping them craft effective pro-business regulations that small business owners and other stakeholders perceive as fair. In addition, these findings may be used to encourage cooperation among competing industries (i.e., “co-opertition”) that find themselves entangled in policy disputes.
This work helps support the IRAEA’s mission by helping stakeholders have a fuller understanding of the impact of industry-specific regulation on Montana small businesses. Montana’s craft brewers are not only entrepreneurial small business owners, they are also citizens and members of various communities. Understanding the impact that policies have on them in all these capacities is vital to our understanding societal well-being.