Beer Case

"US Fights AB InBev with Tested Game Plan" by Brent Kendall

1. Why is the Justice Department of the US Government fighting the proposed merger between Modelo and InBev?

The government is fighting the proposed merger between Modelo and InBev because it views "the Budweiser brewer as a dominant player that wants to eliminate a scrappy rival and its disruptive pricing." InBev has a desire for higher industry prices according to the Justice Department and Modelo plays a vital role in keeping the market competitive with its Corona brand that sells for only approximately $2.00 more (in terms of a six pack of bottles) than does InBev's Bud and Bud Light. The government suggests that when the prices of Bud and Bud Light are raised, some drinkers are inclined to choose or "trade up", as the article coins, to Modelo beers thus creating a sales reduction of InBev products. This would, according to the Justice Department, consummate InBev's desire to merge with Modelo, to reduce this loss in sales and eliminate competition.

2. Discuss the difference in the two sides (InBev and Justice Department) view of the 'market'.

The Justice Department is defining the market as the entire beer market. They are arguing their position from a viewpoint that all beers are in the same market. There is no differentiation due to price, status or many other factors.

InBev has the ability to define the market in a variety of ways. They first have the ability to argue that Corona, along with the other Modelo brands like Pacifico, are of a higher status and are thus not in competition with the mass-marketed brands of Bud and Bud Light.

3. Which side do you come down on - prevent or allow the merger?