Beer in an Age of Mergers

While much attention has been given to the rising cost of tuition and textbooks, the increase in price of one particular commodity has gone unnoticed. It is not a stipend by Colgate, nor can it be bought with ‘Gate Cash, but it has become ubiquitous with the college experience. That particular good is beer.

According to a University of Pennsylvania study, the average college student spends $900 a year on alcohol – and only $450 a year on books. In terms of Colgate currency, that alcohol spending would equate to 120 Coop meals, nine pairs of Bean Boots or 300 trips to the Jug, depending on one’s lifestyle and fashion sense. 

But, given the fact that many students “slush” for beer through splitting or distributing costs, beer price hikes face less scrutiny than price hikes for other goods. 

For brewers such as Anheuser Busch InBev, the maker of Budweiser and Stella Artois, technological advancements and a consolidating beverage industry have made beer easier to brew and less expensive. The only thing that has cost Anheuser Busch more than production over the last decade is outlandish Superbowl commecials. 

Despite declining manufacturing costs, beer prices have been rising faster than the Consumer Price Index, the measure of the average change in price of goods and services over time. The brewing industry has used mergers and consolidation in the industry in order to control (and inflate) prices. 

For instance, Anheuser Busch has conducted 15 takeovers since 2008 – as a result, Anheuser accounts for 38 percent of U.S. beer sales.

When Anheuser attempted to pursue Grupo Modelo, the maker of Corona, for $20 billion dollars in mid-2012, Uncle Sam took notice. The Justice Department filed suit to block the deal, arguing the proposed acquisition would eliminate competition, enhance Anheuser’s market power and facilitate coordinated pricing between Anheuser and the next largest brewer, MillerCoors.

While Anheuser argues that the deal would create significant synergies and lower prices for consumers, such an argument is hard to believe in the context of consistent, year-over-year price increases. A deal between Anheuser and Modelo would not directly impact the price of college staples – Keystone Light and Miller’s Best Light are both brands owned by Miller. However, less competition in the market would inevitably produce price increases.

Despite the potential upward pressure on price from a merger, analysts have suggested that a modified agreement could win the approval of the Justice Department. It is worth noting that in 2011, the Justice Department used its regulatory power to block a $40 billion dollar merger between telecom juggernaut AT&T and T-Mobile. In this case, the Justice Department also argued the merger would leave less

competition in the market and cause increased prices for consumers.

Regardless of the outcome of the Anheuser versus the Justice Department, there will be parties thrown and drinks served.Beer demand at the college level is arguably inelastic – any single digit price increase year-to-year is not likely to have a