Endogenous market structure and competition in the 19th century American brewing industry

Abstract

This study examines market structure and competition in the brewing industry in American frontier states around 1880. Although comprehensive firm-level data are unavailable, available data provide information about the presence of firms in western frontier markets and characteristics of those markets. The analysis uses these data in a discrete dependent variable econometric model to estimate the size of a market needed to support a certain number of breweries and the impact of market characteristics on market structure. In addition, the estimated market sizes needed to sustain different numbers of firms provide information about the competitive effects of entry in the early brewing industry. The results indicate that the presence of second and third brewing firms significantly increased competition in a market implying that duopoly markets were not perfectly competitive. Moreover, these findings suggest that brewing firms were not engaged in collusive behavior.