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