The 1907 Bavarian Beer War

Photo Credit: Eric Kilby via Compfight cc

Touring Bamberg, northern Bavaria, our tour leader mentions the local 1907 Beer War.  The town’s three brewers announced that they were joining to raise suggested retail prices from 10 to 12 pfennigs and charge retailers commensurately more. The pub owners felt the public would be angry and refused to buy from the cartel.  After one dry day they instead began “importing” beer from nearby towns. The public’s thirst was slaked — still at 10 pfennigs a glass.  After a week of no beer sales, the local brewers caved in and cut their asking price to 10 pfennigs a glass.   Moral of the story: even with just three players, it’s hard to maintain a cartel if there are ready substitutes for the product. (HT to MP)

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  1. Seminymous Coward says:

    The actual moral of the story is that it’s hard to maintain a cartel with substantially less firms than there are in the industry.

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  2. Impossibly Stupid says:

    I see no morals at all in that story, for better or worse, just a matter of pure economics. A true moral lesson would have been if the locals kept on buying the non-local brew and eventually bankrupted the cartel brewers or otherwise forced them to lower their price to less than the non-local suppliers. After all, there really is no victory in having a price “change” from 10 to 10, especially if it took extra work/hassle for that to happen. On the flip side, the local brewers *should* have been able to make a counter case for what was clearly an early Wal-Mart Effect: money spent on non-local goods does not benefit the economy of the local community (but perhaps it was clear that the cartel brewers had little community interest in raising their prices).

    And from a supply/demand perspective, you should *always* assume there are ready substitutes. No matter how large and dangerous a monopoly is, innovation will always produce a game changer at some point. Even without FedEx and UPS, postal mail would be facing increasing competition from email and other digital delivery. Industry giants like Microsoft and Nokia completely dropped the ball in the mobile market; the substitutes became ready in due time. There was no ready substitute for a buggy whip, but the market for them still started to dry up round about 1907.

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  3. Allen says:

    The “cartel” was too local in nature. There’s no pricing power if the buyer’s can go to a neighboring town to get the same value. The cartel overestimated its power and was given a reality check. I suppose if no beer was available within 1,000 miles radius, it would be a different story.

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    • bob says:

      If US history is any guide, if there is no beer available within 1000 miles, legally in the American case, then people will resort to moonshine or bootlegging.

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  4. bob says:

    Hard to maintain a monopoly if you don’t control absolutely every company that could compete with you.

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  5. karl marx says:

    “local 1907 Beer War” – Good old times!! now all the Beer are global! Lets buy beer from camboja!!

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