Paper #2: Steel

Beer Wars

Due Wednesday 14 October

Over the course of the industry’s first century in North America the number of brewers fell significantly. In addition – or is it the cause? – several very large brewers emerged, including Pabst [at one time the largest brewer in the world] and Anheuser-Busch. This paper assignment asks you to explore an aspect of this transformation. Do not extend your analysis to the rise of craft beer. Indeed, you probably want to limit your analysis to just a few decades, as appropriate for your topic.

Pick a clear topic, tie it to the theory presented in class and in the Martin text to provide a framework for your argument, and use data from the Ogle book and from Tremblay and Tremblay to make your case. [If you look up firm names you’ll find a few examples from the beer industry in the Martin text.]

The target length is 5 pages, but length should be determined by your topic. I want prose to be “clean” in every sense of the word, but kindergarten technology is fine for graphs or tables, don’t spend time to make them pretty.

Here is a (non-exhaustive) list of possible topics. Note that I believe some of these claims can be supported, some are better refuted.

  • In principle, even before the late 1800s brewing could benefit from economies of scale. However, markets weren’t big enough. It was thus the drop in transport costs that allowed the expansion of firm size and the consolidation of the industry.
  • Beer was a high-tech sector in the 19th and early 20th century, in which R&D led to a series of innovations that transformed the nature of the market. One such consequence was a shift in the potential scale of operations of a brewery. This meant that R&D led to market dominance.
  • Understanding the value chain is central to understanding brewing. While there were changes in farming, upstream operations remained external to beer companies. Downstream operations were a different matter. Brewers that were able to develop strong distribution networks, including through the use of anticompetitive practices, emerged as victors.
  • In beer, product differentiation was minimal; thin margins prevailed. As a result, over time small differences in branding led to large differences in profitability and market share.
  • In beer, product differentiation was minimal; thin margins prevailed. As a result, over time small differences in costs led to large differences in profitability and market share.
  • With hindsight a handful of strategic issues proved critical to success in the beer industry. With a large initial number of players – over a thousand! – it was inevitable that a few firms would stumble upon these. Business journalists tend to view the heads of such firms as superlative leaders. In fact they just happened to be in the right place at the right time.
  • Changes in the consumer end of the market, above all the growth of off-premises consumption, led to the demise of most small brewers.