Justice Dept. makes cheap beer a top priority

Thank goodness Big Brother is there to protect us from evil monopolies.

By TheStreet Staff Feb 1, 2013 12:40PM

By Jonathan Hellerthestreet logo

 

In 1997, the Federal Trade Commission blocked the merger of Office Depot (ODP) and Staples (SPLS), a move that was rather shocking and somewhat comical to me at the time. Thank goodness Big Brother stepped in to stop the formation of this evil monopoly, which, if had been allowed to move forward, surely would have driven the prices of office supplies through the roof, giving the public no recourse.

 

At the time, the director of the FTC's Bureau of Competition, William J. Baer said this: "The FTC's decision to ask a court to block the merger is about lower prices for consumers. If the merger is allowed to proceed, consumers will pay millions of dollars more for their copy paper, envelopes, pens and file folders."

 

You can't make this stuff up; that is a quote taken directly from the FTC Web site. Sounds more like it came from a "Saturday Night Live" skit.


Big Brother is at it again, this time attempting to protect us from a beer monopoly, as the Justice Department filed an anti-trust lawsuit Thursday seeking to prevent Anheuser-Busch InBev (BUD) from acquiring the 50% of Grupo Modelo (GPMCY), maker of Corona, that it does not already own.

 

Evidently, if allowed to proceed, Anheuser-Busch will corner the U.S. beer market, and charge whatever it wants to, which would be severely damaging to US consumers. After all, beer is one of the things, besides air, food and water needed to sustain life.

 

Said William J. Baer, head of the Justice Department's Antitrust Division: "This is the sort of product that matters to consumers. If you have a very slight price increase that happens because of this deal, it could mean that consumers will pay billions of dollars more."

 

Woman looks out at camera Flash Parker Flickr Getty ImagesIn case you are wondering, that is indeed the same William J. Baer that saved us from paying through the nose for pencils by blocking the Office Depot and Staples merger back in 1997. Haven't they got better things to do with our money?

Our economy continues to struggle mightily, unemployment and underemployment are still at alarming levels, the national debt continues to explode, yet at least we'll still have cheap beer. Is that just a ploy to promote drinking in order to further dull our senses and take our attention off the real problems we face as a nation? Or, are they out of things to do at the Justice Department?

 

Again, this is another clear indicator of the lack of understanding about economics by many in Washington. Suppose the merger went through after all, and AB InBev increased beer prices 20%, not because of rising input prices, but rather because they think they can get away with it. Consumers still have choices in the beer market. They can still switch brands, give up drinking beer, or perhaps even make their own.


This is not life or death; but perhaps reflective of a Justice Department that's had its share of controversy over the past few years and is trying to remain relevant.

There was indeed fallout from Thursday's filing: AB Inbev fell nearly 6%, while Mexico's Grupo Modelo fell 6.5%. There was also some collateral damage, as Constellation Brands (STZ) fell 17%, the result of fear that the Department of Justice suit could hurt Constellation's efforts to acquire Modelo's stake in Crown Imports LLC, which is the U.S. importer for Corona.

 

Meanwhile, Boston Beer (SAM), a great success story, and one of the only survivors from the publicly traded micro brewery craze of the 1990's, had a relatively quiet day. Boston Beer is a testament to the fact that the small guy can still make it in the beer industry.

 

At the time of publication, the author held no positions in any of the stocks mentioned.

 

 

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17Comments
Feb 1, 2013 2:44PM
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Thanks Jonathan, we know whose side you are on.

(Hint: it's not consumers, it's not competition, and it's not a fair market.)

Feb 1, 2013 4:05PM
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These types of arguments that try to diminish an action just because there are other bigger problems to solve are trite.  Sure, the economy is bad and there are more important things than the price of beer.  But that doesn't mean we can't also address smaller issues at the same time as we work on bigger issues.  The FTC has more than one employee, and those employees do not all have to be working on the exact same thing at the same time.

 

The author also makes a similar asinine argument of trying to reduce the importance of this action by comparing beer to life necessities such as air, food, and water.  Of course beer is not a requirement of life, but according to this author's viewpoint the FTC should only pursue activities that directly impact life sustaining activities such as air, food, and water.

Feb 1, 2013 4:43PM
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Heller, you are an idiot.  Beer is consumed by a huge number of Americans as evidence by the billion dollars in sales.  And office supplies are important to all small businesses and are also a huge market.  What would be sufficiently important for this author to permit the DOJ to focus on?  

I submit that if you take your head out of your presumably prodigious bottom, you would realize that billions of dollars in product sales means it is an industry that the DOJ should focus on.  If it is a small industry, the DOJ should not because it does not affect a lot of Americans.

Beer probably affects more consumers than most other products in our economy.  Way to demonstrate your utter lack of critical thinking skills.

Feb 1, 2013 4:03PM
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How does Office Depot merging with Staples even compare to beer companies?  Office Depot and Staples are two of the largest business supply companies and there aren't a lot of substitutes and business supplies really don't have any specific identifying characteristics.  In beer there are many smaller companies taking market share from the traditional companies because they make a better product.  Not all markets are set up to be free but the beer market is clearly one that is as close as people will ever see.
Feb 1, 2013 4:00PM
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Since when is the justice department or anyone in Washington concerned about the consumer?  Anything to keep from discussing the real problems.  The media certainly doesn't do anyone any favors by reporting crap all the time.  Drink Up!
Feb 1, 2013 5:14PM
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I'd go so far as to vote for a ban on mergers or acquisitions for any company making more than a $10 billion per year.  Companies don't need to be that size and when they are, they play less fair...because they can.  Too big to fail =too big to exist... in all aspects. 
Further, when these businesses are international, they use the US military to enforce their international trade deals yet they don't pay US taxes for their overseas profits. 
Break up the banks, break up the energy companies, break up ALL the big companies= more jobs and less concentrated power (which contributes to nothing but corruption).
Feb 1, 2013 5:27PM
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Hey Heller go pull what ever you got up ur rear out and go have a beer.

 

I like beer

It makes me a jolly good fellow

I like beer

It helps me unwinde and sometimes it makes me feel mellow (makes him feel mellow)

Whiskys too rough

Champaign costs too much

And vodka sets my mouth in gear

This little refrain will help me explain

As a matter of fact I like beer!

-Tom T. Hall

 

Thanks Big Brother!!!!!

 

Feb 1, 2013 8:21PM
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PHUCKEM !

The DOJ needs to get their head out !

And legalize weed that's safer than BOOZE !

Smoke a BUD instead !

Feb 1, 2013 6:35PM
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Oligopolies surely aren't good for consumers. Maybe I'm out of touch but I distinctly remember from my Economics classes that reduced competition leads to pricing power.   The big beer companies spend a great deal of money creating brand loyalties so switching between brands if prices go up is not always the de facto recourse for the consumer.
Feb 1, 2013 5:33PM
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Who cares.......do I have a job that will pay my bills? I'm I working more than 40 hours a week? Can I get heath insurance that I can afford? Really, office supplies and beer??

Feb 1, 2013 6:12PM
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Yeah, let's all listen to a Liberal rag pseudo money page's take on what is economically feasible. Good plan.
Feb 1, 2013 7:19PM
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This would not affect me one way or the other: I don't drink AB products or Corona.
Feb 3, 2013 2:09PM
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What a joke the Justice department !  They along with all the other regulatory agencies are worthless ! They protect all right the multinationals and the (TBTF) Banking Cartel  !  The American public NO PROTECTION JUST SCREW US ALL !
Feb 2, 2013 6:18AM
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Life is too short to drink cheap beer. A nice Trappist Ale is ALWAYS worth the price.
Feb 1, 2013 10:15PM
Feb 1, 2013 7:21PM
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Yeah, where are the Cobra 40 oz. malt liquor bottles I used to buy for $2 out the door?  In 1984 I was moonlighting in a San Diego liquor store when the first Corona beer came in....a flimsy cardboard box with 20 btls.  I was not impressed. 
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