Antitrust Lawyer Blog Commentary on Current Developments

One Drink Too Many: Why Consumers Will Lose from the Latest Beer Merger

We are increasingly aware of how mergers often cost consumers and the economy in less competition, higher prices and less choice.  Fortunately, the Antitrust Division of the Justice Department (“DOJ”) has been more willing to go to court and block deals that will harm consumers.  The DOJ should remind itself of the vital role of tough merger enforcement when it looks at the proposed merger between ABI and SABMiller.


A straightforward merger between the two would raise antitrust alarm bells that would awaken the dead.  Together, the companies control over 70% of the U.S. market by volume and 65% of the market by sales value.[1]  Recognizing such a deal would be a nonstarter, ABI has suggested that any competitive concerns in the United States will disappear because MolsonCoors will acquire control of the MillerCoors joint venture.  Of course, the DOJ has become increasingly skeptical of negotiated attempts to restructure a market to resolve competitive concerns for deal approval – recently rejecting a massive divestiture in Comcast/Time Warner — and as we explain below they should do the same in this deal unless there are substantive amendments.


There is a tremendous amount at stake in this merger.  The increased size and scope of ABI on a global basis will likely have effects in the U.S. market.  Molson Coors taking over the control of the MillerCoors portfolio may also result in significant changes in how the business operates today.  Moreover, economic studies have shown a simple truth – increased beer consolidation leads to higher prices.[2]  The recent expansion of the high end U.S. craft beer market is remarkable in light of the 2007-2008 big brewer (ABI and MillerCoors) mergers thanks to a robust and independent distribution market which has facilitated the explosion of craft beer entry.[3]  But the craft beer segment is increasingly threatened by ABI’s acquisitions of independent craft brewers and increasing efforts to cut off distribution of competition brands within the ABI aligned distribution channels.  Not only is ABI the largest U.S. brewer, it is also the largest U.S. distributor – currently controlling over 135 million cases with $3 billion in sales across distributorships in multiple states.[4]


Regardless of the public facing attempts to firewall antitrust issues, the proposed acquisition threatens competition in wholesale beer distribution and input markets to brewing and packaging.  This deal produces far more competitive issues than ABI’s acquisition of Groupo Modelo, which was challenged by the DOJ.  At the time, Groupo Modelo commanded only 7% of U.S. market share.[5]


Consumer Harm


There is a simple truth borne out by history.  Beer mergers harm consumers.   In this case, the merger is presumed illegal under the Horizontal Merger Guidelines.[6]  The antitrust enforcement authorities measure market concentration using the Herfindahl-Hirschman Index (“HHI”).  A market with an HHI over 2,500 is considered highly concentrated and a transaction that increases HHI by more than 200 is presumed to be likely to enhance market power.  The HHI of the beer market as of 2014 is 2,751 and the acquisition of SABMiller by ABI would increase that HHI by 2,998 if there are no divestitures.[7]  Even with divestitures it would only take less than 3 points in market share gain for ABI to pass the 200 HHI threshold.


It is difficult to understate these competitive concerns.  In 2008, the DOJ permitted Miller and Coors to form a joint venture.  A careful and thorough econometric study has demonstrated that, since then, tacit collusion between ABI and Miller/Coors has increased over time, substantially increasing the cost of beer to consumers.[8]  The study discovered that prices were stable leading up to the consummation of the joint venture but the prices of ABI and MillerCoors sharply increased after the merger.  The study concluded that tacit collusion best explained the price data.


This tacit collusion is likely to increase now that Molson will take ownership of MillerCoors.  At least with the joint venture, there were two equal voting partners to keep each other honest.  Now, that Molson is taking over MillerCoors, its management incentives may change.  Both Molson and ABI will have significant debts as a result of these acquisitions and could face pressure to increase prices.  Additionally, the U.S. market may exhibit even more characteristics of a duopoly now that MillerCoors is united under a single leadership, meaning that MillerCoors may be more likely to follow ABI on its strategies including price, dealings with suppliers, and dealings with distributors.


Harm to Craft Brewers


One of the biggest concerns of the proposed merger is whether it will lead to a decrease in small brewers’ access to distributors.  The beer market in the United States is a predominantly a three tiered system because state regulation in most states generally requires that the brewer sell to a distributor who then sells to retailers.  This distribution has become the safety valve that keeps beer markets competitive – as the DOJ demonstrated in its challenge to ABI/Modelo, “[e]ffective distribution is important for a brewer to be competitive in the beer industry.”[9]  However, large companies can use their market power to exert a tremendous amount of influence over what beer brands distributors carry.


This is important because ABI and MillerCoors have so far pursued different strategies when it comes to their dealings with distributors.  ABI has pursued a strategy of exclusivity, and has in the past given more favorable terms to distributors who only sell brands owned by ABI.  The 100% share of mind strategy has led ABI to pressure distributors to drop other brewers’ brands.[10]  Recently, the DOJ opened an investigation into ABI’s practices and acquisition of two distributors in the San Jose and Oakland markets.[11]  On the other hand, to date, MillerCoors has been more tolerant of its distributors carrying rival brands.[12]  However, there are no guarantees or provisions in this deal to even require this open practice to remain in place.


In fact, there is a good chance that a 100% Molson owned MillerCoors will follow ABI’s lead in its dealings with distributors.  A Molson owned MillerCoors may have new incentives to adopt different policies towards distributors.  Before the MillerCoors joint venture, SABMiller and Molson Coors successfully shared distributorships and recognized the importance of being open to many suppliers.  Likely, they chose this strategy, because each had relatively small market share compared to ABI.  MillerCoors kept this same strategy as it was under the management of SABMiller and Molson.  Given the change in management and Molson’s new increased size and scope in the U.S. market, Molson’s management may have different incentives.    For example, Molson could change its policy and pressure distributers to stop carrying white beers that compete with Blue Moon, which Molson will get U.S. rights over in this deal.


This problem is further compounded by the fact that ABI is currently the largest distributor in the United States, with $3 billion in sales and 135 million in case volume, and the largest beer supplier with 44.7% of the market.[13]  After the transaction, Molson will have monolithic control over 26% of beer sales.  That’s more than the next 8 largest brewers combined.


Abusive Buyer Power


ABI’s new global scale gives it increased leverage over commodities used in brewing and many other facets of the beer industry that could affect competition in the U.S. market.  ABI and SABMiller are responsible for 21% and 9.6% of world beer production respectively.[14]  The proposed merger would greatly increase ABI’s buyer power by potentially controlling over 30% of total worldwide beer production.[15] The combined ABI –SABMiller entity would have 58% of the global beer profit pool which far outweighs its next closest global competitor Heineken (11%).[16]  Antitrust enforcement agencies are increasingly looking at buyer power and leverage when examining deals.[17]  Abusive buyer power can harm not only input sellers, but also other buyers.

Smaller buyers can be disadvantaged by abusive buyer power due to the “waterbed effect.”[18]  A powerful buyer demanding lower prices or other concessions from suppliers can cause suppliers to increase prices to smaller buyers or otherwise worsen their terms.  The beer industry is particularly vulnerable to waterbed effects due to capacity issues of many inputs involved in the brewing and packaging of beer.


Can maker, Crown Holdings, has recently reportedly dropped both new and existing small craft beer customers and lengthened lead times, implying that they are becoming capacity limited.[19]  Hops shortages occur frequently.  Hops can only be grown in a limited geographic area and requires a lot of water to grow.  Hop growing also has high startup costs and high quality hop plants can take years before they hit full production.  These factors lead to frequent hops shortages that disproportionately impact craft brewers.[20]


Hops come in many varieties that can be roughly divided into two categories: bitter hops used in traditional lagers and aroma hops used predominantly by craft brewers to make more flavorful beers.  ABI is a powerful buyer in the bitter hops market, which is highly commoditized, but does not yet have much market power in the aroma hops market.[21]  The deal could depress prices in the bitter hops market due to ABI’s buyer power and other purchasers who put pressure on their suppliers to compete with ABIs lower costs.  An interesting side effect of this could see more U.S. farmers abandoning the bitter hops market in favor of more profitable aroma hops, further decreasing the ability of other buyers to compete on lager style beers.[22]


ABI’s increased buyer power means that it is more likely to get the inputs it wants, in the quantities it wants, and at the terms it wants.  This is likely to disadvantage input providers, as ABI is notorious for demanding extremely favorable terms like 120 day payment terms.[23]  ABI’s increased monopsony power could also mean worse terms for every other buyer in the market, not just because suppliers may need to raise prices to make up lost profits, but because it may be necessary due to capacity issues.  Smaller buyers could experience delays, poorer terms, or even unavailability.  ABI would also be able to exert its buyer power strategically to disadvantage rivals in this way.


The Proposed Remedies Are Inadequate


Mergers and acquisitions are subject to the Section 7 of the Clayton Act, which prohibits the acquisition of stock or assets where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”[24]  Mergers and acquisitions that would ordinarily violate Section 7 can sometimes proceed if a remedy is crafted that would restore the competition lost.[25]  But the law is unequivocal that any remedy must fully restore the competition lost from the merger.  Structural remedies, such as divestiture, are preferred over behavioral remedies.[26]


Typically, merging companies work with antitrust enforcement agencies to identify areas of concern and agree to appropriate remedies to ensure that the merger can proceed without harming consumers.  Unfortunately, this has not been the case with ABI.  ABI proposed inadequate remedies after its announced plan to purchase Grupo Modelo.[27]  The DOJ had to take ABI to court in order to obtain adequate remedies.  Like here, ABI believed that all problems could be solved simply by selling Modelo’s share of Crown to Crown’s joint venture partner Constellation.[28]


The proposed remedies in this transaction, like Modelo, simply aren’t enough to prevent a disastrous loss of competition.  There are two simple and compelling reasons.  First, no remedy would be complete that did not fully maintain independent distribution and prevent ABI from attacking independent distribution in the future.  ABI’s control of distribution, through ownership and exclusivity arrangements, greatly jeopardizes competition, limits the rivalry of craft beers and leads to higher prices.  This is a problem that many states recognize by prohibiting brewer ownership of distributors.  Craft brewers especially need access to distributors in order to innovate, enter and thrive.  Any remedy should include the sale of ABI owned distribution, a prohibition on exclusivity pressures on distributors, and a moratorium on distributor purchases.  Molson’s purchase of the remaining share of MillerCoors should also be conditioned on remedies that protect independent distribution.


Protection of the distribution channel has already proven to be essential in beer mergers.  In the Modelo transaction, the DOJ imposed conditions on ABI that included barring ABI from using a Distributor Incentive Program to harm Modelo and giving Constellation the right to transfer rights of distribution for Modelo beer from ABI owned distributors to distributors of their choosing.[29]  The judgment also increased reporting requirements for future acquisitions.[30]


Additionally, ABI and Molson will command even greater positions as worldwide input buyers.  As the dominant buyers they will be in the cat bird’s seat, able to manipulate these markets to raise costs to rivals, particularly craft brewers.  This has an immediate impact on the bitter hops market, which will be dominated by ABI and Molson.  ABI and Molson will be able to command the prices and terms they want on a greater percentage of the worldwide hops yield and other competitors will face higher costs impairing their ability to compete.  This problem will be exacerbated by future supply constraints.  Any remedies should take account of this increased purchasing power.


Sometimes the right answer is to say no.  That’s the right answer for the DOJ in this case to the deal as currently proposed.

Andre Barlow
(202) 589-1838

[1]   Greg Trotter, If beer merger happens, would MillerCoors leave Chicago?, Chicago Tribune (Sept. 17, 2015 9:37 am), also, Letter to William J. Baer November 19, 2014, American Antitrust Institute, available at (AAI uses the market share of the entire MillerCoors joint venture in its numbers.  SABMiller owns 58% of the joint venture).

[2] Orley Ashenfelter, Daniel Hosken, & Matthew Weingberg, Efficiencies Brewed: Pricing and Consolidation in the U.S. Beer Industry, Working Paper (Aug. 14, 2013), available at /public_events/Federal%20Trade%20Commission%20Microeconomics%20Conference/weinberg.pdf.

[3]Neil Houghton Jr. & Marin Gjaja, For Small and Large Brewers, the U.S. Market Is Open, BCG Perspectives (June 19, 2014), market_open/

[4] List: Top 30 US Beer Distributors, KATZBlog (Mar. 17, 2015 9:49 am),

[5] Complaint at 2, U.S. v. Anheuser-Busch InBev SA/NV and Grupo Modelo S.A.B. de C.V., No. 13-127 (D.D.C. filed Jan. 21, 2013).

[6] Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines § 5.3 (2010).

[7] See 2015 Beer Industry Update, Beer Market Insights, available at

[8] Nathan H. Miller & Matthew Weinberg, Mergers Facilitate Tacit Collusion: An Empirical Investigation of the Miller/Coors Joint Venture (2015), available at

[9] Competitive Impact Statement, USA v. Anhesuer-Busch Inbev

[10] See Landeo, Claudia M., and Kathryn E. Spier, Naked Exclusion: An Experimental Study of Contracts with Externalities, American Economic Review, 99(5): 1850-77 (2009).  See also Steve Hindy, Don’t Let Big Brewers Win Beer Wars, CNN, Dec. 12, 2012, available at; A-B Expands Wholesaler Plan, Incentives, St. Louis Bus. J., Apr. 2, 2008, available at; David Kesmodel, Beer Distributors Want More than One Best Bud, Wall St. J., Feb. 6, 2008, available at

[11] See, Diane Bartz, U.S. probes allegations AB InBev seeking to curb craft beer distribution, October 12, 2015, available at

[12] Kesmodel, supra note 10; Dogfish Head Leaves Louis Glunz and Signs with MillerCoors Distributor Cluster in Chicago, MyBeerbuzz, Dec. 29, 2012, available at

[13] List: Top 30 US Beer Distributors, KATZBlog (Mar. 17, 2015 9:49 am), 03/list-top-30-us-beer-distributors.html; 2015 Beer Industry Update, Beer Market Insights, available at

[14] The Barth Report 2014-2015 at 7, Barth-Haas Group, available at pdfs/reports/2015/BarthReport_2014-2015_EN.pdf.

[15] It is unclear how the divestitures will impact this number.

[16] Elena Holodny, A Budweiser-Miller brewing company would be a monster, Business Insider (Sept. 16, 2015 9:06 am), It is unclear how the divestitures will impact these numbers.

[17] See Spoken comments of Department of Justice economist Nancy Rose at ABA Event, Bargaining Leverage and Competitive Effects, Jun. 25, 2015.

[18] See John B. Kirkwood, Powerful Buyers and Merger Enforcement, 92 B.U. L. REV. 1485, 1544-46 (2012).

[19] Esther D’Amico, Rexam/Ball: Crown retreat intensifies anticompetitive concerns for craft brewers, sources say, PaRR, available at

[20] Neal Baker, Hop Shortage Threatens Craft Beer, The Drinks Business (June 15, 2015),

[21] There is concern that ABI can gain buyer power in the aroma hops market through continued acquisitions of craft breweries.

[22] Hops and Crop Development Report June 22, 2015, Barth-Haas Group, available at (showing a large swing in the U.S. from bitter hops to aroma hops production).

[23] Richard Whitman, Anheuser-Busch Answers to Accusations of ‘Despicable’ Agency Relations, MediaPost (Mar. 19, 2015 5:31 pm),

[24] 15 U.S.C. § 18.

[25] Ford Motor Co. v. Unites States, 405 U.S. 562, 573 n.8 (1972); United States v. E.I du Pont de Nemours & Co., 353 U.S. 586, 607 (1957).

[26] See United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316, 329 (1961) (calling divestiture “a natural remedy” when a merger violates the antitrust laws).

[27] See Press Release, Justice Department Files Antitrust Lawsuit Challenging Anheuser-Busch Inbev’s Proposed Acquisition of Grupo Modelo, Dep’t of Justice (Jan. 31, 2013), available at

[28] Id. (ABI also offered a 10 year exclusive agreement to supply Constellation with Modelo beer to import into the United States.)

[29] Final Judgment at 15, U.S. v. Anheuser-Busch InBev SA/NV and Grupo Modelo S.A.B. de C.V., No. 13-cv-00127-RWR (D.D.C. Oct. 24, 2013), ECF No. 48.

[30] Id. at 23-24.

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