Assuring Consumers of Authenticity, Safety, & Quality: Early American Whiskey Markets

18 Pages Posted: 7 Apr 2023

See all articles by Macy Scheck

Macy Scheck

Political Economy Research Institute at Middle Tennessee State University

Daniel J. Smith

Middle Tennessee State University - Department of Economics and Finance; Middle Tennessee State University - Jennings A. Jones College of Business

Date Written: March 24, 2023

Abstract

Do markets provide adequate incentives for entrepreneurs to effectively assure consumers of authenticity, safety, and quality in the presence of asymmetric information? Early American whiskey markets, where whiskey was commonly sold out of open barrels, present a classic case of asymmetric information where markets might be expected to unravel because consumers could not readily discern the authenticity, safety, and quality of whiskey often sold out of open barrels. This was especially problematic because prominent public health experts claimed whiskey was commonly adulterated with poisonous ingredients. Despite these market features that would tend to unravel the market, early American whiskey markets were robust before the Pure Food and Drugs Act of 1906. Using archival research from digitized historical newspapers, this paper details the four mechanisms that entrepreneurs in the whiskey industry invested in to assure consumers of authenticity, safety, and quality to prevent the market from unraveling: 1) distinctive characteristics, 2) brand names, 3) exclusive local dealer agreements, and 4) sealed bottles. While distinctive characteristics and brand names were, on their own, ineffective, local dealer arrangements and sealed bottles provided the assurance necessary to prevent the market from unraveling. Entrepreneurs in the whiskey industry had the incentive to undertake these investments to help customers overcome their severe asymmetric information problems.

Keywords: entrepreneurship, asymmetric information, assurance of quality, whiskey, market process

JEL Classification: L26, D82, L10, L50

Suggested Citation

Scheck, Macy and Smith, Daniel J., Assuring Consumers of Authenticity, Safety, & Quality: Early American Whiskey Markets (March 24, 2023). Available at SSRN: https://ssrn.com/abstract=4399485 or http://dx.doi.org/10.2139/ssrn.4399485

Macy Scheck

Political Economy Research Institute at Middle Tennessee State University ( email )

MTSU Box 190
1301 E Main St
Murfreesboro, TN 37132
United States

HOME PAGE: http://www.macyscheck.com/

Daniel J. Smith (Contact Author)

Middle Tennessee State University - Department of Economics and Finance ( email )

MTSU Box 190
1301 E. Main St.
Murfreesboro, TN 37132-0001
United States

HOME PAGE: http://www.danieljosephsmith.com/

Middle Tennessee State University - Jennings A. Jones College of Business ( email )

TN
United States

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