There’s an antitrust fight brewing (groan) between the Department of Justice and two of the world’s largest brewers, which just screams out for a Thursday bonus post.  Even more so because I, whom regularly readers will know rarely believe a deal should be challenged, think DOJ made the right call.

Today DOJ filed suit to block Anheuser-Busch InBev (“ABI”) from completing its proposed acquisition of Mexico’s Grupo Modelo.

As we’ve discussed before, beer is an interesting industry.  There’s a large amount of patchwork, state-by-state regulation that muddies the waters.  There is also a lot of variation across the country, with different leading brands in different regions.  Finally, as any beer lover would know, there has been an explosion in craft brewing in recent years (off the top of my head I can name at least four new brewers that have opened in Minneapolis alone in the last two years).

But the national picture is a bit clearer.  You have your ABI brands (Bud, Bud Light, etc.) and your MillerCoors brands (Miller Lite, Coors Light, etc) and you have a massive swirl of imports and craft brews.

But one of the more interesting aspects of the complaint is that DOJ does not allege an narrow market, e.g. nationally distributed lagers (which I sometimes refer to as “yellow beer”), but instead alleges a product market that includes all beer.

That looks to me like an interest application of the upward pricing pressure concept.  DOJ is saying that it doesn’t particularly matter whether, for example, Surly Furius (or Orval), is included in the market, because there will be a tendency toward higher prices because the brands involved are sufficiently close substitutes.

That should make for an interesting fight given that ABI will surely emphasize that Miller Lite and Coors Light (and likely many others) are closer substitutes for Bud Light than Modelo’s Corona.  DOJ will counter with evidence of coordination in the industry and that Modelo has been a pricing maverick. Unfortunately for ABI, both the press release and the complaint quote some particularly unhelpful documents.