Thursday, January 31, 2013

Beer -- Relevant Market

So this post relates to two of my (our) very favorite things:  beer and competition.   DOJ is blocking the Anheuser Busch/Grupo-Modelo merger.   My first instinct is that there's relatively little good to say about mega-brew, and encouraging competition in the market is a good thing. My second thought is that the amount of beer variety has considerably increased in the last 10 years. Indeed, my own beer taste has become increasingly local and micro.  My third thought is that the beer market has inverted.  In the old days, there were lots of low cost local beers, the Utica Club, Genesee Cream and Falstaff of my youth.  They disciplined the bigs.  Now those smaller breweries are renting their tanks to the high end micros that charge more than the major brands.  My fourth thought is that if you look at which brands ABI InBev controls, my second thought about increased variety may be entirely wrong.  Thoughts??


  1. Is this a relevant market question? The complaint identifies categories of beer (based on the parties' own documents) ranging from sub-premium (Keystone) to High-End (microbrews and imports), but alleges a relevant market of "beer."

    I was thinking of the tremendous efficiencies beer mergers must produce. Making beer is cheap and easy -- even I can make and bottle a batch of relatively tasty beer (or I used to be able to) for much less than it costs to purchase even the sub-premium beers at retail. Distributing beer has got to be monumentally expensive. Mitigate distribution costs and you go a long way to overcoming the effects of pricing power.

    I'm simply confounded on a question implicit in your second and fourth points. Before I knew that A-B Inbev owned it, I really enjoyed Goose Island. Do I need variety in ownership so long as I have variety in manufacture? Keep in mind that my assertion about my own brewing (above) introduces tremendous incentive for a monopolist to maintain a variety of options at reasonable price points.

  2. It turns out that it's not that hard to price discriminate with beer. If price discrimination is possible then there shouldn't be any deadweight loss even from a monopolist. Add in the fact that cost of entry is relatively low for small scale local distribution. I am very fond of Kelso Pilsener. You can't get that outside Brooklyn. Brooklyn Brewery, which makes its mass market stuff upstate has opened a bottling plant in Brooklyn for its bottle fermented higher alcohol content beers. But that stuff is really not in the same market as a twelve pack of Budweiser or MGD. Is it? In other words, entry is easy and competition exists at the high end. Entry is costly and there's a monopoly at the low end . . . It seems to me to only make sense if you look at it as separate markets.

  3. Spencer and Philip may feel otherwise, but to me that question -- market definition in an industry with product differentiation -- is the single most interesting one in all of antitrust. Kelso Pilsener is to Whole Foods is to Staples is to super-premium pickles as Bud is to Safeway is to Walmart is to floppy Vlasics. Too bad it's also one on which economists have, er, monopolized the field.