Anheuser-Busch Companies, Inc.Business Policy Analysis #2

Michael J. Kittle

Managerial EconomicsOctober 13, 2004

Executive Summary

In summary, Anheuser-Busch Companies, Inc. is the dominant player in the domestic

brewery market. The Company is a price maker for its final product of beer, yet is a price taker

for many of its inputs. Beer prices have been relatively stable over the past decade, the price

distinctions have come from the varying taxation on beer. The demand for beer is very inelastic;

however, the estimates of price elasticity of demand for beer and alcohol can vary significantly.

Over the past decade, management has been able to increase revenues by moving their

demand curve through advertising, efficiency, and by monitoring consumer income. Future

revenue growth will be dependent on international growth. Anheuser-Busch currently has an

international presence, but there is great potential for further expansion. Three major events

outside of corporate control that most affected profits were the 1994 Major League Baseball

strike, severe weather events of the past decade and the unforeseen success of the Company’s

advertising campaigns in the late 1990s.

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Table of Contents

Executive Summary 1

Price Maker or Price Taker? 3

Corporate Elasticity 6

Price/Quantity Changes 8

International Marketplace 10

Major Events 12

Bibliography 15

Exhibit A – Explanation of Regression Data 17

Exhibit B – Improved Profit Template – Version 2 20

Exhibit C – Correlation Matrix 23

Exhibit D – Regression Output 24

Exhibit E – Economic Graphs 26

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Price Maker or Price Taker?

Currently, Anheuser-Busch products make up approximately 50% of the domestic beer

market (D’Aveni, 2002, p. 74). With this significant share of the market, and the relatively few

major competitors such as SAB Miller (#2 beer manufacturer in the U.S.), Coors (#3 beer

manufacturer in the U.S.) and Pabst (#4 beer manufacturer in the U.S.), Anheuser-Busch, Inc. is

currently operating in an oligopoly market (“Oligolopy Watch,” 2003). Oligopoly refers to a

situation where there are relatively few large firms in an industry (Baye, 2002, p. 309).

Between the top four beer manufacturers listed above, scores of different brands of beer

are produced. Nonetheless, there is arguably little product differentiation between the major

selling beers, American-style lager and American-style light beer (simply a watered-down

version of the American-style lager) (“Oligolopy Watch,” 2003). Sure, the major companies

offer other types of beer, such as dark, dry, ice, amber bock, pale ale, low-carb etc., but those

varieties do not constitute nearly as much market share as the American-style lager and the

American-style light beers. Thus, there are effectively four major beer manufacturers operating

in the domestic market with very little real product differentiation. This situation is evidence of

a Stackelberg oligopoly, with some characteristics of a Bertrand oligopoly. Regardless of the

specific name given to the oligopoly, Anheuser-Busch is the price maker in that oligopoly.

Anheuser-Busch appears to be operating as a Stackelberg oligopoly. Under a Stakelberg

oligopoly there are few firms serving many consumers, in an industry with barriers to entry, in

this case producing relatively homogeneous products and where a single firm chooses their

output before the rivals select their outputs only after taking the leader’s output as given (Baye,

2002, p. 325). Here, Anheuser-Busch is by far the market leader with about 50% of the domestic

market (D’Aveni, 2002, p. 74). They are in a position to set output to their profit maximization

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level and let the smaller competition follow. As the first mover in this market, Anheuser-Busch

has price making power in that the other firms will wait for them to act first, and then follow

their lead (Baye, 2002, p. 325).

Anheuser-Busch also exhibits characteristics of a Bertrand oligopoly. In a Bertrand

oligopoly there are few firms in a market serving many consumers, the firms produce identical

products at constant marginal cost, the firms engage in price competition and react optimally to

prices charged by competitors, consumers have perfect information with no transaction costs and

there are barriers to entry (Baye, 2002, p. 332). Of course, this does not fully explain Anheuser-

Busch’s position since consumers never have perfect information with no transaction costs and

that the goods sold by competitors are not identical, but they are substantially similar. While not

a true Bertrand oligopoly, since there are some marginal costs and the result of the domestic beer

market is not the same as a perfectly competitive market as would be expected under a true

Bertrand model, Anheuser-Busch exhibits some characteristics of both the Stackleberg model

and the Bertrand model.

In addition, Anheuser-Busch is operating in a market with a kinked demand curve,

characteristic of an oligopoly market (Baye, 2002, p. 310). Under a kinked demand curve,

Anheuser-Busch still has the power to be a price maker, as long as that price is lower than the

current market prices. When the Company lowers their prices, the competitors in the market will

follow. However, if the Company raises their prices, competitors will likely retain their original,

lower prices. The kinked demand curve somewhat limits Anheuser-Busch’s ability to be a true

price maker.

In addition, Anheuser-Busch is a price taker with respect to the price of their inputs for

their beer production. Barley, hops and yeast, the major ingredients to beer are sold in near

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perfectly competitive markets (as most commodities are). Because Anheuser-Busch is a price

taker with respect to their inputs, to some extent their ability to be a price maker in their final

product of beer is limited. But, all beer makers are price takers with respect to their inputs. It is

Anheuser-Busch’s dominance in the domestic market gives the Company enough power to be

the price maker of the market

Overall, prices do not vary much in the beer market (Frank, 2000, p. 164-165). However,

the price the consumer ultimately pays has varied over the past decade because of increases in

liquor taxes (Chaloupka, Grossman & Saffer, 2002). Although prices have changed, mostly

because of taxes, this additional tax money goes to federal, state and local governments, not to

Anheuser-Busch. Nonetheless, the Company must consider taxes since they are factored in to

the final price of Anheuser-Busch’s products and will have an impact on their demand curve.

This impact is not very significant as the following elasticity analysis will demonstrate.

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Corporate Elasticity

According to our textbook, the price elasticity of demand in the alcohol market is

approximately -0.3 (Baye, 2002, p. 79). More realistically, economics have a very difficult time

calculating an accurate value of elasticity for alcohol. In various attempts by various economists

from 1980 to 1997, price elasticity of demand estimates for beer ranged from -1.39 to +0.22 for

beer and from -2.94 to -0.05 for spirits (Freeman, n.d.). This extremely wide range of elasticity

estimates is caused primarily by the problem that liquor and beer prices usually do not vary

sufficiently to permit an accurate estimate of their effects: To study elasticity of alcohol, the best

results come from studying price changes that result from changes in taxation of alcohol, and

even then the estimate is not very accurate (Frank, 2000, p. 164-165). Generally, however,

most estimates suggest that beer consumption is relatively insensitive to price compared to other

alcoholic drinks such as wine and spirits (Chaloupka, Grossman & Saffer, 2002). Nonetheless,

trusting our textbook’s estimate of elasticity of alcohol demand, an elasticity of demand of -0.3 is

very inelastic. Conceptually, that elasticity value means that for every 10% change in price we

should expect only a negative 3% change in quantity demanded. Even in the long-term, where

consumers have much more time to react to price changes and more time to seek out potential

substitutes, the price elasticity of demand in the alcohol market is still inelastic at -0.9 (Baye,

2002, p. 79). Apparently, even in the long-term, consumers find it difficult to find an adequate

substitute to an ice-cold beer; makes sense to me.

Since price does not vary much in the beer market, at least when the varying state taxes

are not considered as distinguishing factors, it is difficult to find market factors consistent with a

finding of an inelastic demand curve for Anheuser-Busch. Nevertheless, I believe the varying

state taxes themselves and their lack of impact on the quantity of beer demanded are significant

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evidence of beer’s inelasticity. Studies have shown that the current levels of taxation on alcohol

have had very little effect on alcohol demand, suggesting that there is considerable room for

further government revenue generation from additional taxes (Freeman, n.d.). In fact, from 1955

to 1983, taxes in real dollars per gallon of alcohol decrease about 50%; since 1983, however, the

taxes are back on the rise (Pogue, Thomas F. & Sgontz, Larry G., 1989). Given the inelasticity

estimate cited in the textbook, this is no surprise. As of 2001, state taxes on a case of beer

ranged from $0.13 in Missouri (the home of Anheuser-Busch) to $2.37 in Alabama (“Beer

Institute,” n.d.).

Moreover, the Anheuser-Busch faces a market where alcohol is income inelastic. One

study has shown that the income elasticity of alcohol is 0.2, very inelastic (Yen, Steven T. &

Jensen, Helen H., 1996). This figure means that a 10% increase in income will result in a 2%

increase in alcohol purchases. However, this estimate includes all types of alcohol. I would

predict that the income elasticity of beer would be lower than the average of alcohol, as was the

case with elasticity of demand, possibly even negative. In fact, a negative income elasticity of

beer would be supported in part by the regression data found in Appendix D. For Anheuser-

Busch, an increase in the real GDP per capita in the United States of 1% results in approximately

a 4.5% reduction in economic profits. This is characteristic of a good with a negative income

elasticity, also known as an inferior good (Baye, 2002, p. 86). It is important to note that

although real GDP per capita was a statistically significant independent variable in the regression

analysis, there are other possible explanations for the negative relationship, such as the small

number of data points in this sample, the large variation in the % change in economic profits and

the comparatively small changes in % change in real GDP per capita.

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Price/Quantity Changes

One way the Company attempts to increase revenues is through their award-winning

advertising campaigns (“Anheuser-Busch,” n.d.). In the last decade alone, the Company was

fortunate enough to experience several successes with its big advertising campaigns. Among the

most successful campaigns were the “Born-on Dating” campaign, the “Michelob Family of

Specialty Brews” initiative, the “We All Make a Difference” campaign, the “Whassup”

campaign and of course the award winning “Budweiser Frogs” campaign (“Anheuser-Busch,”

n.d.). Of course, successful advertising has the effect of shifting Anheuser-Busch’s demand

curve outward and to the right (Baye, 2002, p. 38). In providing more information about the

products, or simply making the products more popular, advertising has the effect of getting

customers to pay higher price for the same number of units or to purchase more units for the

same price (Baye, 2002, p. 38). Given that beer prices have been relatively constant over the

past decade, not factoring in the varying federal, state, and local tax changes, advertising is more

likely to get consumers to purchase more product at a constant price than constant output at a

higher price, resulting in higher revenues for Anheuser-Busch (See Exhibit E, Graph 1).

In addition, increasing incomes over the past decade have had an impact on revenues at

Anheuser-Busch. Although increasing incomes is not an action by management, management

must be aware of consumer incomes to get an accurate picture of revenue changes, as the

following will illustrate. During almost every year of the previous decade, real GDP per capita,

a reasonable substitute measure for personal incomes, has increased (“Economic History

Services,” n.d.). According to the regression analysis conducted, there was a negative

relationship between increases in income and profitability (See Exhibit D). Thus, I will look at

beer, at least Anheuser-Busch beer in the last decade, as an inferior good. As the discussion on

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elasticity illustrated, this assumption is not far off. With inferior goods, increases in income will

result in a decrease in demand (Baye, 2002, p. 36). Thus, the increase in incomes ultimately

results in a decrease in revenue for Anheuser-Busch (See Exhibit E, Graph 2).

Anheuser-Busch also strives to improve revenues by increasing the efficiency of their

production (“Anheuser-Busch,” n.d.). The efficiency improvements have the effect of reducing

manufacturing costs while at the same time maintaining or even increasing output, resulting in

lower marginal costs. Lowering marginal costs, while at the same time maintaining fixed cost

levels and the price level, results in higher revenues.

In addition, throughout the past decade Anheuser-Busch has been extremely effective in

attacking any threat poised by microbreweries. Since 1993, the Company has been meeting the

potential threat of microbreweries simply by producing several alternative beers thorough its

Specialty Brewing Group (D’Aveni, 2002, p. 73). In doing so, the Anheuser-Busch is thwarting

their competition, much like American Airlines has consistently done against new entrants into

the airline business at its regional hubs. While this practice does not necessary generate new

revenue, the management are increasing revenue by preventing the loss of market share to the

new entrants and ultimately preventing loss of revenue.

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International Marketplace

Although Anheuser-Busch is currently the largest brewery in the world, its international

exposure is relatively underdeveloped; the Company’s dominance of the U.S. market is enough

to skew the numbers to place them atop the world list of breweries (“Anheuser-Busch,” n.d.). It

is because of this dominance of the U.S. market, which is almost to the point of saturation, that

Anheuser-Busch must further expand into international markets in order to grow beyond normal

population growth. Moreover, the international marketplace is vital for Anheuser-Busch’s future

revenue growth since per capita consumption of beer in the United States has been consistently

decreasing from 24.0 gallons per year in 1986 to only 21.8 gallons in 2000 (“Beer Institute,”

n.d.). With declining per capita consumption of beer in the domestic market, there is declining

per consumer revenue potential. It is important to note that the declining per capita consumption

of beer in the domestic market does not mean that Anheuser-Busch’s domestic revenue will

decrease, however, since other factors lead to revenue increases such as advertising, population

growth, etc.

Currently, Anheuser-Busch’s international business constitutes approximately 20% of the

Company’s net income (“Anheuser-Busch,” n.d.). This percentage has increased year over year

for the past six years. Nonetheless, Anheuser-Busch continues to face the challenge of

effectively growing into international markets. Anheuser-Busch has recently been effective in

international markets not only by focusing on the bottom line, but also upon developing business

credibility and reputation in the foreign countries, allowing the Company to win over the locals

at a much faster rate (Miles & Davies, 1998, p. 19). One of the most successful ways Anheuser-

Busch and the other domestic breweries have been able to win over locals abroad is by entering

strategic alliances with foreign breweries (“Anheuser-Busch,” n.d.). Over the past few years,

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Anheuser-Busch has entered into several equity partnerships with leading breweries in high

growth markets. Examples of these partnerships include Modelo (brewers of Corona) and Femsa

(brewers of Dos Equis, Sol and Tecate) in Mexico, Stag Brewery in the United Kingdom, Labatt

Breweries in Canada, Heineken Italia in Italy, Cerveceria Damm in Spain and most significantly

with the Tsingtao Brewery in China (“Anheuser-Busch,” n.d.). Earning a foothold in these

growing markets and gaining the loyalty of the local populations, especially in China, which is

the largest beer market in the world, is key to Anheuser-Busch’s future growth. Currently,

Anheuser-Busch owns a 9% stake in the Tsingtao Brewery and plans to increase that share to

27% by the end of the decade (“Anheuser-Busch,” n.d.).

One major obstacle the Company has continued to face in its efforts to expand into

international markets is protecting its brand. Protection for Anheuser-Busch’s various brand

names have been contested in jurisdictions around the world since 1911 (“Lords,” 2003). For

example, one Czech brewer is “involved in almost 40 court cases with [Anheuser-Busch], as well

as more than 40 administrative proceedings before national trade mark offices” (Hering 2003).

As of 2003, Anheuser-Busch has formally claimed the rights to Budweiser in several nations, but

there is still a great deal of work left in protecting its brands internationally (Hering 2003).

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Major Events

Baseball Strike

One major event outside the control of the corporation that impacted revenue was the

1994 Major League Baseball Strike. After suffering revenue drop of over 15% from 1994 to

1995, arguably in large part because of the baseball strike, Anheuser-Busch decided in 1995 to

sell their Major League Baseball franchise, the St. Louis Cardinals. Before the strike, the

Company had owned the Cardinals since 1953 (“Anheuser-Busch,” n.d.). Since no games were

played for nearly a full year, the St. Louis Cardinals, as well as the other Major League teams,

took in very little revenue. Not only is the fact they sold the team relevant, but also the fact that

this sale occurred immediately after the 1994-95 Major League Baseball strike when the team

was significantly under priced (Gotthelf 1997). At the time, management reacted to the decrease

in revenue caused by the strike by simply selling off the team and focusing on its core brewery

business (“Anheuser-Busch,” n.d.). In hindsight, I argued in the previous Business Policy

Analysis that selling the Cardinals was a mistake that cost Anheuser-Busch significant profit

potential, especially now that the Cardinals are in the playoffs.

Severe Weather

Several severe weather events over the past decade have negatively affected the revenue

of Anheuser-Busch. First, severe flooding in the Midwest during 1993, and to a lesser extent in

1997 caused problems for many Midwest corporations, including Anheuser-Busch (“National

Climatic Data Center,” 2004). With its primary location along the Mississippi River in St. Louis,

and with all transportation in and out of the St. Louis metropolitan area practically ceased during

the 1993 floods, some of Anheuser-Busch’s major distribution lines were interrupted

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(“Anheuser-Busch,” n.d.). Severe droughts also affected growing areas of the United States in

1996, 1998 and 2002 (“National Climatic Data Center,” 2004). Although they were not nearly as

severe as the droughts of 1980 or 1988, the droughts of the last decade, along with the severe

flooding, damaged a large number of crops and caused many crop prices to rise (“National

Climatic Data Center,” 2004). As discussed earlier, crops prices increasing would result in a

higher price of inputs to Anheuser-Busch’s production of beer, likely cutting into the Company’s

profit margin. Management did not have to do much to react to these severe weather events.

Having experienced droughts in the past, and realizing that U.S. crops were a major input to their

production, management had actively hedged their risk in the commodity markets to protect

against droughts (“Anheuser-Busch,” n.d.). Nonetheless, management was somewhat caught

off guard, along with the rest of the Midwest, during the unexpected and abnormally devastating

1993 floods.

Unforeseen Success

Additionally, Anheuser-Busch was fortunate enough to experience several successes with

big advertising campaigns in late 1990s. Among the campaigns were the “Born-on Dating”

campaign in 1996, “Michelob Family of Specialty Brews” in 1997, the “We All Make a

Difference” campaign in 1999, the “Whassup” campaign in 2000 and of course the award

winning “Budweiser Frogs” campaign (“Anheuser-Busch,” n.d.). Although advertising is

definitely within the control of the Company, it was likely unforeseeable to have had so many

consecutive successes with advertising campaigns in such a short time; usually management

would have expected some campaigns to fail and management would budget for them.

Nevertheless, after each successful advertising campaign, even when the continued success was

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not expected, Anheuser-Busch management did not simply sit back: Instead, they worked on

getting ready to launch the next campaign (“Anheuser-Busch,” n.d.).

The Future?

As discussed, it is unlikely that severe weather, unless extremely unusual, will affect the

bottom line of Anheuser-Busch in the future because of the Company’s active use of hedging.

Nevertheless, what sort of events could come up and hurt the Company’s profitability? While I

can foresee several events that potentially could have a significant impact on the Company, such

as changes in the corporate tax structure, shakeups in management, or the failure to enter one or

more international markets, I see one potential event that will have a longer-term impact on the

Company’s bottom line: liability for the negative health effects of alcohol. I strongly believe that

once the lawyers and the media are finished destroying and attacking the tobacco industry for

knowing about the dangers of smoking tobacco while continuing to allow the public to purchase

tobacco at will, the alcohol industry is next in line. With the continuously growing problems of

heart disease, liver disease or even drunk driving, I am surprised the brewery industry isn’t

subjected to the same multi-million dollar punitive damage awards as the tobacco companies.

The breweries know they are distributing a product that is hazardous to health and regardless of

its legality, they will ultimately be held liable for the side effects.

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Bibliography

Anheuser-Busch Companies Home Page. (n.d.) Retrieved October 9, 2004, from http://www.anheuser-busch.com/

Baye, Michael R. (2002). Managerial Economics and Business Stragegy, 4th ed.

Beer Institute (n.d.). Retrieved October 9, 2004 from http://www.beerinstitute.org/

Chaloupka, Frank J.; Grossman, Michael & Saffer Henry (2002). The Effects of Price on Alcohol Consumption and Alcohol Related Problems. Retrieved October 9, 2004 from http://www.niaaa.nih.gov/publications/arh26-1/22-34.htm

D’Aveni, Richard (2002). The Empire Strikes Back: Counterrevolutionary Strategies for Industry Leaders. Harvard Business Review, 80, 66-74. Retrieved October 10, 2004, from http://search.epnet.com/login.aspx?direct=true&AuthType=cookie,ip,url,uid&db=buh&an=7720804&loginpage=loginpage=login.asp?custid=s8480238

Economic History Services (n.d.). What Was GDP Then? Retrieved October 6, 2004 from http://www.eh.net/hmit/gdp/

Frank, Robert H. (2000). Microeconomics and Behavior, 4th ed.

Freeman, Donald G. (n.d.). Alternative Panel Estimates of Alcohol Demand, Taxation and the Business Cycle. Sam Houston State University. Retrieved October 11, 2004 from http://www.iaes.org/conferences/past/montreal_48/prelim_program/e20-1/freeman.htm

Gotthelf, Josh (1997). Owners Realize $25 Million Gain on Four Garages. St. Louis Buisness Journal. Retrieved September 12, 2004, from http://www.bizjournals.com/stlouis/stories/1997/03/31/story2.html

Hering, Ingrid (2003). Sweden Latest Battle Ground Over Bud. Managing Intellectual Property, 129, (n.p.) Retrieved September 14, 2004 from http://search.epnet.com/login.aspx?direct=true&AuthType=cookie,ip,url,uid&db=buh&an=9944849&loginpage=loginpage=login.asp?custid=s8480238

International Financial Statistics Online. (n.d.) Retrieved September 12, 2004 from http://80-ifs.apdi.net.lib.pepperdine.edu/imf/ifsbrowser.aspx?branch=ROOT

Lords Nip Beer Battle In Bud. Managing Intellectual Property, 127, 14. Retrieved September 14, 2004 from http://search.epnet.com/login.aspx?direct=true&AuthType=cookie,ip,url,uid&db=buh&an=9392266&loginpage=loginpage=login.asp?custid=s8480238

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Mergent Online. (n.d.) Retrieved October 4, 2004, from http://80-www.mergentonline.com.lib.pepperdine.edu/home.asp

Miles, Louella & Davies, Gary. (1998). The Effect of Globalization on Reputation. Strategic Communication Management, 2, 14-19. Retrieved September 14, 2004 from http://search.epnet.com/login.aspx?direct=true&AuthType=cookie,ip,url,uid&db=buh&an=7007684&loginpage=loginpage=login.asp?custid=s8480238

National Climatic Data Center (2004). Billion Dollar U.S. Weather Disasters, 1980-2003. Retrieved October 11, 2004 from http://lwf.ncdc.noaa.gov/oa/reports/billionz.html

Oligopoly Watch (2003). Retrieved October 10, 2004 from http://www.oligopolywatch.com/stories/2004/01/24/beerIndustry.html

Pogue, Thomas F. & Sgontz, Larry G. (1989). Taxing to Control Social Costs: The Case of Alcohol. The American Economic Review, 79, 235-244. Retrieved October 6, 2004 from http://80-proquest.umi.com.lib.pepperdine.edu/pqdweb?index=11&did=000000000127417&SrchMode=1&sid=1&Fmt=2&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1097658515&clientId=1686

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Exhibit A – Explanation of Regression Data

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Regression A

Dependent Variable:movement in economic profits (calculated in BPA #1)

Independent Variables:Movement in marketing (adjusted for CPI) - controllableMovement in inventory (adjusted for CPI) – controllableMovement in US real GDP per capita (2000 basis) – uncontrollable

Equation:Predicted % movement in economic profits = 13.989 + 1.245 * % movement in marketing + 0.027 * % movement in inventory – 4.53 * % movement in US real GDP per capita

All independent variables with the exception of percentage change in inventory were

statistically significant, meaning the t-statistic did not fall between the range 2 < t < -2.

Although inventory, a statistically insignificant variable was included in the regression, the

regression was quite explanatory. The adjusted R-squared was 0.954. This means that 95.4% of

the movement in the dependent variable of economic profit movements can be explained by the

independent variables of movement in marketing, inventory, and US per capita real GDP.

Marketing was chosen as a controllable independent variable since advertising is one of

the major ways that Anheuser-Busch grows its brand to improve revenues. In addition I chose

inventory as a controllable independent variable thinking that changes in inventory could affect

revenue in that it costs money to store and maintain a large stock of beer. As it turns out,

inventory was not statistically significant. One probable explanation for this, in hindsight, is that

you cannot really store beer too long anyways, thus inventories can not possibly grow large

enough for it to significantly impact revenue. Also, Anheuser-Busch has been brewing for many

years now and likely has their production process nearly perfected so that inventory is efficiently

managed. For the uncontrollable independent variable, real GDP per capita was chosen as a

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substitute for personal income. I chose this variable in order to see the effects of changes in

personal income on the Anheuser-Busch’s profits; to see whether Anheuser-Busch’s products are

inferior goods (through an economic analysis and not a simple taste test).

Since the R-Squared in the above regression was over 80% the addition of binary

variables was not necessary. To show I understand how they work, binaries derived from the

residuals in Regression A were added as independent variables in Regression B as follows:

Regression B

Equation:Predicted % movement in economic profits = 13.56 + 1.22 * % movement in marketing + 0.035 * % movement in inventory – 4.11 * % movement in US real GDP per capita + 2.02 * Binary (High) – 4.02 * Binary (Low)

As expected, the addition of the two binary variables as independent variables increased

the R-squared value from 0.954 to 0.991. This means that 95.4% of the movement in the

dependent variable of economic profit movements can be explained by the independent variables

of movement in marketing, inventory, US per capita real GDP and the two binary variables.

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