Class 03

Class 03 Econ 243 Fall 2015

Lessons and Pointers: What to Look for in an Industry

pending: how to formally analyze

• what is the industry?

= alcoholic beverages? beer in general? lager beer?

= empirical question on extent of substitutability

› in 19th & 20th century, “beer” meant lager beer

» ales were only found in a few eastern

» hard liquor was a working man’s tool for getting drunk

= market was the German-influenced community

» social drink consumed outside the home

• economics of manufacturing

= details of actual method, jargon: “malted,” “wort,” “bottom fermenting,” and “hops”

cost structure!! basic knowledge for any industry!

= ale less expensive: no need to cool, fast fermentation, no need to age

= lager expensive: needed to cool, slow fermentation so had to carry large in-process inventory of beer in cold storage

› technology: cooling

» winter but seasonal ==> not feasible business model

» ice plus underground storage

› technology: heating

» potential economies of scale

» but if feasible shipping distance small, then in practice irrelevant

› technology: microbiology, agricultural technology

» not sophisticated, but successful brewers had background (eg, wine, vinegar)

economics of distribution

= ale didn’t keep, couldn’t ship

= beer heavy, a one-day wagon route from the brewery, further if rivers available

= consumed in saloons and particuarly Biergarten

• marketing, other issues

= does marketing matter?

› if so how / when?

= economies of scale?

= changes in market?

= changes in technology?

<p class="nisusp2">∑ we have a list of issues

= things we need to be think about in reading case study material

= but not (yet!) a set of formal “economics” tools