Saturday, February 2, 2013

This suit's for you

The U.S. Department of Justice has sued to stop Anheuser-Busch InBev's bid to buy Grupo Modelo (WSJ account here).  The two largest brewers ABI and MillerCoors control 39% and 26% of the US market; Modelo is a distant third at 7%.  DOJ fears that the merger would lead to higher prices and less choice.  DOJ claims to have data that show Modelo does not match price increases initiated by ABI, giving Modelo a stronger role in price setting than its market share would suggest.

I took a quick look at the DOJ brief and came away unconvinced.  There are two possible interpretations of Modelo's hesitancy to follow ABI's lead in rising prices: (1) Modelo sees itself as a competitor of ABI and wants to gain market share or (2) Modelo and ABI actually operate in separate markets and Modelo fears it would lose customers if it matched ABI's price increases.  DOJ is basing its case on #1.  Evidence on cross-price elasticity of demand would be needed to see if #2 is a more valid interpretation. 

ABI markets Bud, Bud Light, Michelob, Stella Artois, Becks and other brands across the globe; Modelo's brands include Corona, Modelo, Negra Modelo (my favorite of the bunch), and Victoria.  Notice any difference between the two brand portfolios?  This will be heavily debated should the case come to trial. 

One amusing insight from the DOJ brief was the description of the four major market segments subpremium (Natty Light, Keystone), premium (Bud, Miller Lite), premium plus (Bud Light Lime, Michelob Ultra), and high end.  The high end includes craft beers (Dogfish Head, Flying Dog) and imports (Heineken, Corona).  No argument on the first two segments, but I doubt many craft brewers pay attention to Corona prices. 

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