January 31, 2013 – The American Antitrust Institute (AAI) praised the Department of Justice’s (DOJ) decision to file a complaint today to block Anheuser-Busch InBev’s (ABI) proposed acquisition of Grupo Modelo (Modelo). The DOJ rightly recognizes that this deal threatens to reduce competition in the U.S. beer industry, likely resulting in higher prices and reduced product innovation.
An independent Modelo has served as a particularly active, creative, and influential competitor in the beer industry. The DOJ observed in its complaint that Modelo does not follow ABI and SAB Miller on pricing and has constrained their ability to raise prices. In addition, Modelo is in the process of building the world’s largest brewery in Mexico along the Texas-Mexico border – a facility that will likely further increase its ability and incentive to compete on price. Modelo has also spurred ABI to broaden its product portfolio. As the DOJ pointed out in its complaint, ABI launched Bud Light Lime in 2008 to challenge Corona. ABI has also studied launching other brands to compete head-to-head against Corona and other Modelo brands and capture market share among the rapidly growing Latino population.
The transaction, if consummated, would increase concentration in an already highly concentrated industry led by ABI and SAB Miller. As described in the AAI’s monograph on the beer industry, Global Beer: The Road to Monopoly?, this transaction would be the latest in a series of mergers that have created a duopoly in the U.S. beer market. Furthermore, it would eliminate an important independent brewer that has been a key driver of price and non-price competition in beer. The likely result of the transaction, as the AAI concluded in its white paper, would be higher prices and reduced variety for U.S. beer drinkers.
The DOJ correctly recognized that the parties’ proposed upfront remedy of selling Modelo’s 50% interest in Crown Imports, its exclusive U.S. distributor, to joint venture partner Constellation Brands was wholly insufficient. Under this plan, Crown would depend on ABI for its supply of Modelo- branded beers. And statements from Crown’s CEO to Crown employees indicate that he recognized that Crown would go from being a competitor of ABI to merely a distributor of some of its brands.
In light of the already concentrated U.S. beer market and Modelo’s role as a dynamic independent brewer, the AAI applauds the DOJ’s complaint against the proposed acquisition and commitment to preserving both competitive prices and wide variety in beer for American consumers.
The American Antitrust Institute is a 501(c)(3) education, research, and advocacy organization. See www.antitrustinstitute.org. This statement was approved by its Board of Directors. Individual advisors of the AAI may hold different opinions. A list of contributors may be obtained by writing to email@example.com.