Leonardo Angiulo: Recent Antitrust Lawsuit Protects Our Access to Beer

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Monday, February 04, 2013

Leonardo Angiulo, GoLocalWorcester Legal Expert

The pitched battle between Main Street and Wall Street has hit a critical threshold: it may adversely affect beer prices. A recent Department of Justice lawsuit filed by their antitrust division, seeks to prevent Anheuser-Busch InBev from purchasing a controlling share of Grupo Modelo in Mexico. The complaint alleges that the deal would result in a single entity handling 46 percent of a $80 billion dollar industry. Importantly, they also allege American consumers will face sustained increased prices for their beer of choice if the deal goes through.

Acknowledging some readers are more into wine, or don't drink at all, let me identify some of the players in this deal. Anheuser-Busch InBev (aka AIB) is, itself, the product of a significant merger from a few years ago. The recognizable brands mashed up at that time were that American icon Budweiser and the European wonder brew Stella Artois. The target of this takeover is Grupo Modelo that offers perennial favorite beers like Corona Extra.

The problem the Department of Justice seems to have arises out of certain internal documents from AIB tending to show an improper purpose for the takeover of Modelo. Public statements from the antitrust division point to allegations in the complaint that the purchase by AIB is specifically designed to eliminate competition for their brand. AIB seems to have implemented a plan to get their competitors to charge the same amounts they do, thereby sustaining maximum prices for their products and preventing other breweries from gaining marketshare by decreasing consumer costs. Those same internal documents allege Modelo has been targeted by AIB because of increasing pressure on prices of brands like Corona competing with Bud Light Lime through downward pricing by distributors.

The basic principle behind antitrust laws is the idea that competition in the marketplace breeds better quality at the best prices. When a single entity violates, or when multiple entities join together in a conspiracy to violate, anti-trust laws the Department of Justice is empowered by several pieces of legislation to file suit in an attempt to correct the economic climate.

When businesses work together to improperly control their economies, individual consumers lose out. Take price fixing as an example. If two or more entities providing the same product agree that they will sell at the same price, or that neither will sell below an agreed to rate, then they may both get the benefit of inflated prices. Another tool is bid rigging where parties predetermine which of them will provide the winning bid for, typically, public contracts. As you can imagine, this tactic can result in significant detriments to the taxpayer.

Relevant to this merger, based on public statements by the Department of Justice, is the prohibition on mergers likely to increase prices to consumers. The concern is that if one company gets too big it will place individuals at a disadvantage by dictating prices. As you can imagine, a single company with enough volume in an international market has the benefit of artificially high prices if it wants or, even worse, undercutting competitors in small markets and spreading their losses out.

Based on Department of Justice claims, this merger has the potential to decrease overall quality, prevent craft and new breweries from entering the marketplace and raise prices for the beer industry as a whole. Of note, however, is that ABI already owns approximately half of Modelo. The issue in the case is whether ABI should be permitted to purchase the controlling share of Modelo.

If it were permitted to do so, the Government expects AIB to increase the cost of supplying the distributor who is keeping prices of Corona down. AIB then wins the war by, instead of competing for market share by either making a better beer or lowering prices, buying its competitor and thereby owning that piece of the market that wants Corona style brews. They then get to charge whatever they want.    

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