Supreme Court finally ends consumer challenge to InBev SABMiller merger; petition presented wonderful summary of brewery and distributor consolidation
You probably thought this was all said and done biven that the government approved the merger between InBev and SABMiller following SAB’s divestiture of Miller to Molson Coors in the United States. But you’d be forgetting that after the 9th Circuit rejected the antitrust challenge to the SABMiller merger, the plaintiffs – consumers who objected claiming the effect on the beer industry violated the Clayton Act’s prohibition on monopolies – requested the Supreme Court hear the matter.
Yesterday, the Supreme Court denied that request. So the 9th Circuit decision upholding the lower court’s determination stands.
The case, however, was not without some interesting contributions. Two of these, points and arguments raised from the trial level on through the Petition for Certiorari regarding the history of brewer consolidation and control of the distribution tier of the three-tier system merit repeating:
- The reminder, more academic and informative than argumentative, of the history of recent (2002 to the present) concentration in the U.S. beer market went as follows:
The United States’ beer market is already highly concentrated, the product of successive acquisitions and joint ventures, including: (1) SAB (South African Brewing) acquired Miller Brewing Company in May 2002, forming SABMiller, plc ; (2) Molson Coors was formed in 2005 through the merger of Molson of Canada and Coors of the United States; (3) the formation of the joint venture between SABMiller and Molson Coors, so-named MillerCoors, in 2008; (4) InBev’s acquisition of the United States’ then largest brewer, Anheuser-Busch in 2008, forming Anheuser-Busch InBev; and (5) ABI’s acquisition of the remaining interest of Grupo Modelo in 2013. … Before the deal, ABI together with Molson Coors and SABMiller (through the MillerCoors joint venture) controlled 71% of the United States beer market. … ABI is the largest seller of beer in the United States, controlling over 46 percent of the market. … MillerCoors is the second-largest beer company in the United States,controlling 25 percent of U.S. beer sales.
- Second the petition spent a bit of time addressing the important issue of distributor consolidation and cross-tier ownership and the effect fewer competitors might have on this tier of the market:
Effective distribution is important for a brewer to be competitive in the beer industry, and the acquisition will lead to a decrease in small brewers’ access to distributors. The beer market in the United States is predominantly a three-tiered system because state regulations in most states require that the brewer sell to a distributor who then sells to retailers. Large companies can and do use their market power to exert a tremendous amount of influence over what beer brands distributors carry…. ABI is the largest distributor in the United States,with $3 billion in sales and 135 million in case volume…. ABI owns 14 distributors/wholesalers in the following cities; Boston,Massachusetts; Canton, Ohio; Denver, Colorado;Eugene, Oregon; Los Angeles, California; Louisville, Kentucky; New York, New York; Oahu, Hawaii;Oklahoma City, Oklahoma; Pomona, California;Riverside, California; San Diego, California; and Tulsa,Oklahoma. … In addition, ABI has the country’s largest network of independent distributors, numbering approximately 600. Almost all of the distributors, although independent, operate under exclusive agreements withABI in which they agree not to deal with the products of any competitors and not to distribute products outside of their own designated territories. … Pre-transaction, ABI and MillerCoors pursued different strategies in their dealings with distributors in the United States. ABI pursued a strategy of exclusivity and has given more favorable terms to distributors who only sell brands owned by ABI. This 100 percent share strategy led ABI to pressure distributors to drop other brewers’ brands. On the other hand, before Defendants’ deal, MillerCoors permitted its distributors to carry rival brands. There are no guarantees or known provisions in the ABI-SAB deal that require MillerCoors to keep its strategy in place, post-acquisition…. Since the acquisition requires co-joint venturer,Molson Coors, to acquire SAB’s interest in the joint venture, it is likely that a 100 percent Molson Coors owned MillerCoors will follow ABI’s lead in its dealings with distributors. Before the MillerCoors joint venture,SABMiller and Molson Coors successfully shared distributorships and recognized the importance of being open to many suppliers. They likely chose this strategy because each had relatively small market share compared to ABI. MillerCoors continued the same strategy when it was under the management of SABMiller and Molson. Given the resulting change in management and Molson’s new increased size and scope in the U.S. market following the ABI-SAB acquisition, Molson’s management has new incentives to change its practices to match ABI’s. …Past acquisitions have increased coordination in the United States market. Before ABI’s acquisition of Modelo, ABI and SAB were forced to offer lower prices for their brands to discourage consumers from“trad[ing] up” to Modelo’s brands, because Modelo’s then U.S. distributor had consistently resisted pressure to follow ABI-led price hikes. … ABI’s acquisition of Modelo eliminated the substantial competition that existed between ABI and Modelo in the United States. It further enhanced the ability of ABI to unilaterally raise the prices of brands it owned post-acquisition and has resulted in price increases by Constellation of its Modelo brands in the United States. … In addition, the formation of the MillerCoors joint venture facilitated coordinated price increases betweenABI and MillerCoors. A 2015 study found that the MillerCoors joint venture facilitated tacit collusion between ABI and MillerCoors, resulting in price increases: The results indicate that emergent tacit collusion between MillerCoors and ABI best explains the data….We show that inflation-adjusted retail prices are stable about a small downward trend for at least seven years preceding the merger. This trend breaks dramatically and abruptly just after the merger.We estimate that the retail prices of ABI and MillerCoors brands increase by six percent, both in absolute terms and relative to the price changes of more distant substitutes. The retail price increases persist through the end of the data, and are apparent visually in graphs of inflation-adjusted prices over the sample period.We show that the sales volumes of ABI and MillerCoors decrease after the merger, again in absolute terms and relative to more distant substitutes. Considered together, these price and output effects are consistent with a negative supply-shock contemporaneous with the Miller/Coors merger.