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Drink Up: The Justice Department just came out in favor of cheaper beer

George W. Bush never much liked antitrust enforcement. So, as the curtain began to fall on the second Bush term, the beer industry saw its chance and took it, pulling off two of the industry’s biggest-ever mergers. SAB Miller’s purchase of Coors brought together not only Miller and Coors but also Pilsner Urquell, Peroni, Grolsch, Molson’s and Foster’s.  Then came InBev’s purchase of Anheuser-Busch, creating an even bigger global powerhouse that combined Bud, Michelob, Becks, Stella Artois, Bass, Boddington’s, Lowenbrau, Spaten and St. Pauli’s Girl. For the U.S. market, the result was that the two industry leaders now accounted for about 80 percent of beer sales by volume, a level of concentration well above what anyone considers healthy or competitive.

Mmmmmm. Beer. (bigstock) Mmmmmm. Beer. (bigstock)

Even that level of dominance, however, wasn’t enough to satisfy industry leader AB InBev. Despite rising profits, the Bud guys were more than a little annoyed that an ever-increasing number of craft brewers were chipping away at their sales, in some cases with the help of Bud’s own distributors. And while Miller was only happy to follow along with AB’s strategy of gradually raising prices each year for its most popular brands, the refusal of Corona to play along had cost them market share and forced them to roll back prices in markets like California and Texas.

AB finally decided this competition thing had gone too far. So last year it announced that it would pay $20 billion to buy up the half of Corona’s parent, Modelo, that it didn’t own. Unfortunately for AB, the Obama administration was not about to compound the mistakes of the previous administration. Thursday, the Justice Department announced it would file a federal suit to block the merger — a victory not only for Joe Six Pack but also for distributors and craft brewers who had complained about a wide range of anti-competitive practices by the King of Beers.

Given the already high levels of concentration in the industry, the proposed purchase of the No. 3 Corona by No. 1 AB was absurd on its face.  But in rummaging through the files at AB headquarters, government lawyers dug up what amounts to smoking gun memos from AB executives complaining of Corona’s “value-destroying pricing strategy” that would only lead to  “lower total industry profitability.”  The competition had become so problematic, in fact, that Bud executives at one point contemplated launching several Mexican-style brands to try to thwart Corona’s growth — exactly the kind of competition that benefits consumers.  But, as the Justice Department noted in its court filing, none of that would have happened if the Corona purchase was allowed to go through.

I’ll have much more on all this in a long piece for The Washington Post’s Business section this Sunday. For now, let’s just say it’s a good day for Joe Six Pack and a strong signal from the Justice Department’s new antitrust chief, William Baer, that the government will no longer turn a blind eye to excessive industry concentration.

Steven Pearlstein is a business and economics columnist who writes about local, national and international topics.



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Ezra Klein · January 31, 2013

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