Technology adoption and industrial leadership: How Brewing Moved West in the United States

I study the connection between the invention of new technologies and the rise and incumbency of leaders within an industry. I focus on the rise of Midwestern breweries in the US after the invention of pasteurization in the late nineteenth century. Pasteurization reduced the marginal cost of shipping beer for breweries willing to build bottling plants. Using a brewery-level dataset that I constructed, I show that the endogenous adoption of bottling allowed for the early expansion of breweries that later became leaders in the industry. These breweries were located in the Midwest because of their low transportation costs to nearby markets with weak competitors that were mostly isolated before pasteurization was invented. In the Northeast, breweries were unlikely to adopt bottling and focused on their home markets instead. The early expansion of Midwestern breweries occurred mainly through shipments within the Midwest, as opposed to shipments from the Midwest to the Northeast. My results are consistent with an extension of the endogenous sunk cost framework developed in Sutton (1991, 1997). ∗Most recent version: http://www.cehernandez.info/research. This paper was part of my doctoral dissertation at UCLA. I am thankful for the encouragement and guidance of Leah Boustan, as well as the detailed feedback that I have received from Walker Hanlon, Dora Costa, Romain Wacziarg, Edward Leamer, Lynne Zucker, Michael Darby, and Xavier Durán as well as participants at the Economic History Society meetings and the Beeronomics Conference. This project is supported by the Center of Economic History at UCLA, the All-UC Group in Economic History, the Economic History Association, the Institute for Humane Studies, Colfuturo and Banco de la República. E-mail: [email protected]