AB InBev is the largest beer brewer in the United States, holding about 47% of the market. AB InBev was formed in 2008 after InBev acquired Anheuser Busch, and sells popular beers like Budweiser as well as lesser-known beers like Shock Top and Goose Island. AB InBev is seeking to acquire full control over the Mexican brewer Grupo Modelo which sells popular beer brand Corona, as well as others such as Negra Modelo and Pacifico. These types of transactions do not go unnoticed, and 5 senators sent the Department of Justice a letter detailing its concerns about the deal. The letter stated that, “This merger will enhance ABI’s ability to either acquire more distributors or else pressure otherwise-independent distributors to discontinue relationships with rival brands, including craft breweries.”
This concern stems from the fact that ABI has been buying distributors in states where it is legal to do so, rupturing the buffer zone between manufacturers, distributors and retailers that promotes healthy and vigorous competition. There is some evidence that by purchasing such distributors, ABI intends to use its control to favor its own brands in distribution, scaring the likes of smaller breweries. ABI is prepared to roll its’ sleeves up and fight the DOJ on its antitrust allegations. Before the parties make their way to court however, ABI and the DOJ will negotiate over ways to amend the deal that will meet the DOJ’s satisfaction. This is a common occurrence in antitrust lawsuits initiated by the government. One possible condition of the deal would be ABI selling off a high tech Modelo bottling plant located in Mexico, something that ABI was initially opposed to, but may back down from after some negotiation. If the parties do not come to an agreement, they will take their matter to court.
Do you think that such governmental action is warranted in this case?
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The Government is warranted in getting involved in this situation. Mr. Goldstein raises many good points but another aspect of this suit is what the effect of buying Modelo would mean to the market. As Mr. Goldstein mentioned, AB InBev owns about 47% of the market. AB InBev’s main competitor is MillerCoors which owns about 26% of the rest of the market and Modelo only owns about 7%. (http://www.cnbc.com/id/100439562). While the stake Modelo has in the market seems small, the problem that comes into play is that Modelo does not follow the lead of the AB InBev and MillerCoors when it comes to price increases and that has, according to AB InBev’s own internal documents, “put increasing pressure” on the company. (Id.). What the Government is arguing is that the effect of buying Modelo is a coordinated effort to stifle competition and falls under a “coordinated efforts theory” in anti trust law. (Id.). This theory holds that in a highly concentrated market, competitors may explicitly or implicitly coordinate their prices or other kinds of behavior. (Id.) The fact that there are internal documents to support this accusation leads one to believe that AB InBev is not so blindsided by the allegation that this move violates anti-trust law. The situation gets more complicated because as part of the deal, AB InBev will be selling Modelo’s 50% stake in Crown Importers, Modelo’s main distributor, to Constellation Brands. (Id.). This way the distribution, marketing and pricing would not be under the control of AB InBev. The Government argues that this was a ploy to disguise the fact that this deal would change the market. (Id.). The Government relies on internal documents of Crown Importers that quotes the CEO of Crown as ecstatically saying “[o]ur No. 1 competitor will now be our supplier…. it is not currently or will not, going forward, be ‘business as usual.”‘ (Id.). What we essentially have here then, on top of all the points that Mr. Goldstein mentioned, is a company that is trying to get rid of the only company that is not willing to play ball when it comes to price increases. If this is the case, then government intervention is warranted.
I agree. It seems pretty clear that ABI is attempting to wipe out all of its competition by buying and merging with them. Here, in the United States, that is a violation of our anti-trust laws as I understand them. I believe it is, therefore, important for the Department of Justice to get involved, and I applaud the five senators who brought this matter to the DOJ’s attention. Promoting healthy competition among businesses is at the core of our capitalist society. Allowing a foreign owned company to come in to the United States and stifle that competition by creating a near monopoly on beer manufacturing, distribution, and retail sales is a violation of American law. Now, I realize the way I have portrayed the problem in this comment may seem alarmist and possibly blown out of proportion to some. However, to those people I say this; we’re already being charged $5.25 for a Bud Light at Ron Black’s. Can we really afford ABI to create a beer monopoly across the globe?
I agree that the government is warranted to take action to stop AB InBev from acquiring the Mexican brewer, Modelo. The government’s concern that such an acquisition would consolidate the US beer market too much is warranted. Such consolidations in the market have a history of resulting in negative consequences for the consumers including price increases, and decreased market competition. It may especially have a negative impact on smaller breweries, which may be unable to compete fairly with AB InBev because AB InBev would favor its own brands in distribution. According to the Reuters article cited above, when AB InBev and the other major player in the beer market, MillerCoors, raised prices in the past, the smaller company, Modelo, and its popular Corona beer had a positive impact in the market by keeping its prices low.
AB InBev’s acquisition of Modelo may eliminate this positive component of the market and may have a negative impact on consumers by raising beer prices without the natural check of market competition.