Last week I mentioned that I would write more about the DOJ’s beer case. Which should surprise no one as this is a blog about antitrust generally and merger control specifically, so how could I not linger over what’s shaping up to be a litigated merger case?
Let’s continue to put aside a more detailed analysis of the complaint and the facts on which it’s based and consider a different question, which, to be honest, I should have thought about in my first post on the subject: are the 2010 Merger Guidelines the law?
By alleging a broad beer market, DOJ seems to be trying to avoid the market definition problems that have plagued the agencies in the past. As we’ve discussed, an agency allegation of an unnatural sounding market (e.g., premium natural and organic supermarkets) has sometimes been a weakness that the defendants can successfully attack. Defendants can significantly weaken the case against them (or even get the complaint dismissed) by showing that there were other players who should have been in the market and would have been had the agency not made up some gerrymandered market definition to exclude them.
As I explained in my inaugural post, the relative success the defense bar has had in exploiting that tactic was widely seen to be a motivating factor in the agency’s 2010 revision of the guidelines, which de-emphasized market definition and emphasized direct evidence of anticompetitive effects (in part via the upward pricing pressure concept).
But there is a problem. As much as the guidelines are central who how the agencies and the antitrust bar analyze mergers during the investigative stage, they are not the law once the case reaches the courtroom. Nor, specifically, is upward pricing pressure.
The law still requires a properly defined product market, and one of the first things that comes to mind here is that DOJ itself alleges that Bud and Bud Light are in separate market segments from Corona. One would have to expect the defendants to argue that perhaps the markets should be more narrowly defined. That while perhaps there is some interplay between segments, imports like Corona and Modelo Especial belong in a separate market from ABI’s big domestic brands. For the parties’s sake, let’s hope the judge doesn’t do a blind taste test on the products, though, or she might have a hard time buying that.
In a similar vein, there may also be space between Sec. 7′s “substantially lessen competition” and upward pricing pressure. That is, it may be that even if the addition of a brand with minimal share in an adjacent product segment to ABI’s strong position is enough to anticipate some upward pricing pressure, perhaps that pressure is not a substantial lessening of competition. It may depend on how effectively DOJ and its economic experts can explain the expected price increases.
Applying intuition in an almost complete absence of facts, what do you think the diversion ratio is between Corona and Michelob? Leaving aside that it may vary substantially in different geographic areas, it’s hard to imagine a particularly large pool of customers for whom those two are the first and second choices. If you were a Michelob drinker (is there such a thing?), would you switch to Corona if the price of Michelob went up a little? Or would you choose Coors or Miller or another ABI product first? Does the fact that ABI already owns brands that are likely closer substitutes (e.g., Michelob Ultra, Michelob Light, Bud, Bud Light, Busch, Busch Light, etc.) suggest only a minimal, instead of substantial, impact on competition for this particular transaction?
One of the more interesting things to watch for is the extent to which DOJ is successful in establishing the 2010 revision to the guidelines in the law. It may be the case that DOJ would have been in a better position to litigate this case using more traditional standards and alleging higher shares in a more narrowly defined market. But getting the court to acknowledge the new guidelines’ approach may be more valuable for the long run than this individual case.