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Thursday, August 27, 2009

Trust-Busting the Macros?

What happens when two corporations that control 80% of a given market decide to raise prices at the same time, by the same amount? The feds get interested. It looks like collusion and price-fixing:
Anheuser-Busch InBev — purveyor of the president’s preferred brew, Bud Light — and MillerCoors, a joint venture between SABMiller and Molson Coors, are raising prices at the same time, during a recession and while beer demand is slumping. With 80 percent of the market between them, the move almost begs for an antitrust review.
The problem, of course, is that consolidation has left us with just two owners. When there are three or more, the companies have to compete on prices for market share. When there are only two? Well, all that competition gets in the way of profit margins.
After South African Breweries bought Miller in 2002, it set out to take market share from Bud. Its bigger rival responded by slashing prices. The others were then forced to match. This competition fostered a better outcome for consumers — indeed, the summer of 2005 was a beer drinkers’ dream.

That’s all changed. SABMiller and Molson Coors kicked off a joint venture last year that combines the market powers of the second- and third-largest players. InBev, meantime, has no stomach for a price war after its $52 billion debt-financed splurge on Anheuser.
By historical standards, this is pretty outrageous. In 1966, the Supreme Court prevented the 10th and 18th largest breweries--Pabst and Blatz--from merging. All of which has inclined Obama to have a look, and the Justice Department may review these Bush-era mergers.

As an editorial aside, the idea to raise beer prices seems totally boneheaded. While it's true that they control 80% of the market, that share isn't growing, thanks to micros. Sales are way down this year for tin-can beer, and further alienating off your already-wavering customer base seems like a bad long-term strategy. And all of that is before the question of price-fixing arose. We are often lectured by certain segments of the political spectrum about the genius of business, but there are moments when you have to wonder.


Update.
Patrick Emerson riffs on my post, rebutting my suggestion that the macros are behaving stupidly. Rather than have a two-blog debate, you can read his post there, and my response in comments.

5 comments:

Ralph said...

We are often lectured by certain segments of the political spectrum about the genius of business, but there are moments when you have to wonder.

Wonder what? I'm unclear what I'm supposed to be wondering.

Jeff Alworth said...

I don't know what you should be wondering. But I'm wondering why anyone would think raising beer prices amid falling demand and precipitating an antitrust action is smart.

Perhaps you're wondering how it can be that a beer blogger like me is so smart. Just one possibility.

dr wort said...

LMAO!

Ralph said...

They raise their prices because they can. I don't suppose that ever crossed your mind. I suggest you read your friend Patrick who is a bit more fair-minded in his approach to the topic than you.

It is called business fool, something for which you seem to have disdain for unless it is some uber-local place where you can act all cool to shop at around your friends.

I suppose you work for some non-profit whose job it is to save the whales or something.

Yes Jeff, it is your intelligence I am wondering about now that you mention it.

Jeff Alworth said...

Ralph, I've commented at Emerson's blog. Your speculation about both my background and biases miss the mark fairly widely--though I do like whales.

You are not the first person to question my intelligence. Nor, sadly, do I expect you to be the last.

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