Do Market Concentration, Pricing Practices Warrant Antitrust Probe of “Big Beer”?

This posting was written by John W. Arden.

By announcing plans to raise beer prices during a recession, while beer demand slumps, the two major beer producers in the U.S. are “almost begging for an antitrust review of the industry,” according to an article posted August 31 on Slate magazine’s “The Big Money” blog.

Both Anheuser-Busch InBev and MillerCoors have announced price increases for the coming months, despite flat sales. The two companies increased prices at about the same time last year. The planned increases could raise the price of a 12-pack by about a dollar in some markets.

But “with 80% market share, it’s pretty easy for them to raise prices without seeing too many volume decreases,” Dinesh Gauri, assistant professor of marketing at Syracuse University, told the Wall Street Journal.

Declining Volume, Increased Prices

Despite beer volumes declining at the sharpest rates in more than a decade, both beer giants reported strong profits this year. Adjusted income for MillerCoors rose 27% in the first six months of 2009, as compared to the first six months of 2008. Anheuser’s North American division experienced a 29% increase in earnings in the first half of the year.

Although both companies cite rising expenses as the cause of their planned increases, critics have noted that “key price drivers”—such as hops and barley—are not seriously increasing in price. Nevertheless, beer prices have risen faster (up 4.6 percent) than consumer goods overall (down 2.1 percent) this year.

The parallel price increases “raise a red flag,” according to Aliza Rosenbaum and Rob Cox, writing on the “Big Money” blog. The companies’ ability to raise prices, “while their customers are hurting most, highlights the tremendous pricing power that has accompanied consolidation in the industry in recent years.”

Waning Competition

Between 1947 and 1995, the number of U.S. brewers decreased by more than 90 percent. When the “big three” (Anheuser, Miller, and Coors) were still around, there was competition in the U.S. market, according to Rosenbaum and Cox.

However, the June 2008 joint venture of Miller and Coors and the July 2008 acquisition of Anheuser Busch by global brewing giant Inbev changed the landscape of the industry. Since then, the “big two” have shown no interest in competing on price.

If the Obama Administration takes a stricter approach to antitrust enforcement, “big beer” may be in its sights, according to the article. An antitrust investigation may be politically popular, particularly since the big brewers are “for all intents and purposes, foreign-owned.”

The article (“Breaking Up Big Beer: Should Obama go after the bloated brewers?”) appears here on “The Big Money” website.