DoJ vs. Beer-Price Inflation

The U.S. Department of Justice yesterday announced plans to sue AB-InBev to prevent its planned merger with Group Modelo SAB. (The former counts Budweiser and Stella Artois as two of its marquee brands, while the latter features Corona and Modelo.) According to a Wall Street Journal report, the DoJ’s main objection to the merger is that it would likely lead to price increases for many of the most popular-selling US beers:

U.S. authorities said they want to prevent any overcharging by the global giants that dominate mass-market brews…The Justice Department’s 27-page lawsuit, filed in Washington, D.C., federal court, portrayed Modelo as an important competitor that puts pressure on AB InBev to maintain lower prices…

The article goes on to cite federal sources claiming to have access to internal InBev memos, which allegedly show that the company both acknowledged and was frustrated by downward price pressure from Modelo. When InBev raised prices on staples like Bud Light, Miller-Coors would follow suit with its core offerings, but Modelo would keep prices flat.

Full disclosure: I am a craft beer fanatic, and like most people, don’t like paying more for stuff I like. Let’s assume the DoJ is correct, and that beer prices would rise as a result of this merger. I still find myself struggling to understand why the maintenance of low beer prices constitutes a compelling government interest.

Many previous antitrust cases may have been frivolous and unnecessary, but they were at least rooted in reasonable, if overblown, concerns. The FTC went after Google for dominating a very important arena: web search results, which are a huge driver of e-commerce. DoJ successfully blocked AT&T from merging with T-Mobile because of fears over what would happen to the mobile communications marketplace, which serves as a lifeline for hundreds of millions of Americans.

While one does not “need” e-commerce or affordable access to mobile bandwidth, they are staples of life for the majority of citizens, and are largely responsible for conferring what we’d think of as a “modern” way of life. I may have disagreed with the government in both instances, but at least agreed that we were talking about very important markets.

Beer? Sure, we might drink a lot of it, but it is the definition of a discretionary good. The avoidance of its consumption most likely confers significant health benefits. To that end, the same government suing a private company to keep beer prices down also spends millions of dollars on advertisements encouraging people to consume less beer. (If there’s a better example of government logic, I’m at a loss to think of it.)

Precedence and antitrust legal theory may favor the DoJ here. I’m ill-equipped to opine one way or the other there. What I can say with some certainty, however, is that I do not need the government’s help in subsidizing my own bad decisions. That’s what I have friends for.

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