Connected Organizational Lives: The Effects of Producer and Wholesaler Entrepreneurial Organizations on Each Other

Producers and consumers are the ones in the spotlight of markets. We can all name beer brands or endlessly talk about consumer experiences with beer. However, we never hear about a big array of intermediary organizations – beer wholesalers/distributors – who move boxes to deliver beer to the retailers. Among many other examples, the beer industry is a market where regulations prohibit vertical integration – a firm cannot be a producer and a wholesaler at the same time. This institution is the three-tier system and is in place in the US beer industry since the end of Prohibition (1933). Under these conditions of institutionalized brokerage, the two segments of the industry are co-dependent by design. I focus on this relationship as I explore the main empirical puzzle of this presentation: from the 1980s onward, as the number of breweries increased, the number of wholesalers decreased. I further estimate the effects of organizational form on wholesaler survival because the general deconcentration did not have the same effect on every wholesaler. Although the number of corporations followed the national trend and decreased by 21%, the number of partnerships – an alternative form of organizing in which individuals share management and profits – more than doubled. While in 2007, 3.6% of the organizations were organized as a partnership, by 2012, 11% of the wholesalers opted for this legal form.

I analyze how market dynamics between industry segments affect distributor entrepreneurs in the beer industry. I show that the inverse trend between brewer and wholesaler entrepreneurial activity is connected and estimate the effects of organizational form on wholesaler survival. I run two, linked event-history models on population data. I have obtained special sworn status with the United States Census Bureau. The unique data I have access to includes yearly tax returns of every wholesaler and brewer in the United States from the past 30 years. Besides establishing a relationship between the market entry of brewers and the market exit of wholesalers, results will show that institutional processes affect wholesaler survival. I expect that those smaller companies that managed to prosper during these times and the ones managed to enter the market were in large part organizations that opted for alternative forms of organizing.

In summary, this presentation explores how the market density mechanism – increasing producer number and constant spatial coverage – affect intermediaries and their legal-organizational form. To that effect, I place intermediary entrepreneurs back into their institutional contexts. I complement resource partitioning theory’s producer side focused explanation showing that dynamics between two industry segments affect entrepreneurs on each side. Moreover, I link literatures on alternative forms of organizing and traditional questions on industry dynamics by showing the differential function that partnerships had under different market conditions. This research raises awareness that dynamics between industry segments need to be taken into account when designing policies that support entrepreneurship because these policies might have the opposite effect on entrepreneurs in other industry segments.