Do Consumer Tastes Evolve with Competition? The Case of the Slovenian Beer Market

We use the natural experiment of EU entry to test the hypothesis that the lack of consumer tastes for diversity in beer may be responsible for slow development of small breweries in a highly concentrated beer market. Our contribution is to propose that lagged imports diversity, which increased after joining the common market, may be used as a proxy for consumer tastes development. Our reasoning is that after the EU entry, when imports soared, consumers became increasingly exposed to a much wider variety of beer styles. This might have led at least some of them to develop a taste for diversity in beer. In turn, this increased appreciation of diversity may have led them also to appreciate more the products of domestic microbreweries. Using monthly sales data, we are able to find some empirical confirmation that variety of imports indeed helps domestic small producers to cope with increasing competition. This suggest that the >> taste for beer diversity << may develop as consumers are faced by a larger variety of beers. However, higher significance of domestic supply diversity compared to imported diversity may indicate that apart from actual beer tasting, there are additional channels of taste development, such as the general international fad for microbreweries which is developing in recent years.