At Oktoberfest, people buy more beer when the price rises

Every year, the beer sold at Oktoberfest got a lot more expensive. And yet, for the most part, festival goers didn't seem to mind - not, at least, if their spending habits were of any indication.

From about 1995 until 2012, beer consumption per capita at the once-a-year brew festival rose with little interruption.

That uptick came despite a furious increase in beer prices at the event-price increases that far outpaced both general upward price trends and beer specific inflation in Germany. This bit from the report puts the Oktoberfest beer inflation in perspective:

"Without getting nostalgic and blaming anybody, in 1985 the price for one Maß [one liter of beer] was 6.1 deutschmarks, or the equivalent of EUR 3.1 [or $3.50]. Since then, the beer price at the Wiesn has risen by more than 220%. This compares to just a 69% rise in German consumer prices."

Bottled beer price growth looks flat by comparison over the years. Very flat.

The reason the simultaneous rise in beer prices and beer demand per person at Oktoberfest is bizarre is that beer is normally what economists call an elastic good. When beer gets more expensive, people tend to buy less of it. "On average, a 1% increase in the price of beer triggers a roughly .3% decline in the demand," a report by UniCredit Research noted in 2013.

At Oktoberfest, however, up until a few years ago, there seemed to be an inversion of the conventional understanding of beer economics. Ever since the early 1980s, a 1% increase in beer prices has actually resulted in a 0.3% increase in demand for beer at the festival.

The suggestion, according to UniCredit Research, is that beer sold at Oktoberfest might be what is known as a giffen good, which people buy more - not less -- as it gets more expensive. And that's interesting, because very few goods are treated this way by the world. Up until 2008, when researchers showed that rice might behave in this way, most argued that giffen goods existed only in theory. Some, as it happens, are yet to be convinced.

The past couple years have softened the idea that beer demand and prices at the raucous event tend to follow suit. In 2013, beer prices rose and beer demand fell. The same happened in 2014. "As sales per visitor have fallen for two consecutive years, the question is whether Oktoberfest beer is beginning to turn into a normal good or whether we are just seeing a transitory correction in beer consumption at the Oktoberfest," the 2015 report says.

One thing that might be causing beer to sell at the festival like nowhere else is the lack of competition. In Germany alone, there are more than 1,300 breweries. It's hard for any single one of them to wield pricing power over the market. At Oktoberfest, however, competition is limited, and the cost of operating a tent, from which vendors sell beer, has been rising for various reasons (increasingly stringent security requirements have played a sizable role). Passing that off to consumers has been comparatively easy.