The U.S. Justice Department has sued AB InBev’s planned $20 billion acquisition of Corona from Mexican owner Grupo Modelo, on the grounds that the expanded AB InBev and MillerCoors would dominate the U.S. beer market and raise prices to the detriment of consumers. This is the same Anti-trust concern that prevented the AT&T acquisition of TMobile and UPS’s bid to acquire Dutch TNT Express.
As of 2012 AB InBev market share is 37% percent, followed by SABMillerCoors share of 30%. The DOJ argues that The Corona acquisition would raise AB InBev’s U.S. beer market share from 37% to 46%. Together, the two giants would control 76% of the U.S. beer market, leaving U.S. beer consumers with a plethora of second tier and regional brands amounting to 24% of the market. Does this mean no consumer choice and no price competition?
Guess what? In 2012 Coca Cola’s market share in the U.S. was 41.9%, larger than AB In Bev’s share, followed by Pepsi’s 29.9% market share, equal to SABMillerCoors. The Soda giants combined share is 71.9%. Just like beer options, there are plenty of soda options, particularly store brands and far more soft drink options as consumers steadily shift to healthier libations. Should the government demand that Coca Cola divest some of its share to bring it down to AB InBev’s current 37%? Of course not! So why is soda more sacrosanct than beer?
The purpose of Anti-trust legislation is to protect consumers from price gouging. Yet, with two dominant players in both categories, we have not seen price rises out of line with general consumable price increases.
Hermann Simon in his renown book Hidden Champions cites dozens of German companies that have in excess of 80% market share in their niche B2B categories? Their pricing power is passed on to consumers. Tetra fish food, a B2C exception, is a good example of this quasi-monopoly dominance. But as a fish pond fancier, I have bought cheaper options at PetSmart.
The EU Anti-trust Authority has not taken action against these companies.
Does Anti-trust for consumer protection have a different rule for B2C mass market companies? Is there, or should there be a mandated upper limit of market share that a duopoly like AB InBev and SAB MillerCoors in beer or Coca Cola and Pepsi in carbonated soft drinks should be allowed to control, or for that matter a quasi monopoly like Tetra? After all, consumers must like these products to account for their success.
I would propose an 80/20 rule in the consumer market. So long as 20% is available for options, consumer taste and competitive consumer pricing can be accommodated. What do you think?
Milton Kotler, 3.5.12