Antitrust

Topics: Economics, Monopoly, Competition law Pages: 9 (1258 words) Published: December 7, 2014


Anti-Trust Case- Anheuser-Busch InBev
Xavier A. Aldea
DeVry University

Anti-Trust Case- Anheuser-Busch InBev
Introduction
The Antitrust law is one that encourages marketplace rivalry by controlling anti-competitive behavior by businesses. The laws and regulations prohibit accords or acts that limit free trading and competition among businesses (Jacobson & American Bar Association, 2007). This may include cartels, dominating firms, some mergers and acquisitions and joint ventures. Conducts that are deemed a threat to competitive process can be barred, or permitted on conditions such as requirements to divest part of the merged company (Rubinfeld, 2001). United States antitrust law controls the behavior and management of corporations, in order to encourage fair rivalry for the benefit of customers. In beer antitrust case

The government challenged beer firm Anheuser-Busch InBev SA's planned agreement with Mexican beers brewer Grupo Modelo (Elzinga, 2011). The U.S. administration applied an influential legal concept that it has used several times to stop other mergers. The government view is that although Modelo beers account for a mere 7 percent of the U.S. beer market, it plays a significant, pro-competitive element in the market since it has different pricing strategies from the two dominant players; AB InBev with a 39 percent, and MillerCoors with a 26 percent market share respectively. It is the view of the government if Modelo is eliminated; the remaining two may get involved in price coordination. Modelo is said to have increasingly prevented ABI's price leadership (Elzinga, 2011). In U.S antitrust laws, coordinated effects concept holds that in a vastly intense market, rivals may match their prices or other sorts of conduct by implication or outright collusion (Kintner, Bauer & Kratzke, 1980). The U.S government's merger procedures and guidelines explain how regulators tackle mergers between competitors. The guide equally delineates conditions in which coordinated effects are possible to happen, such as where obstacles to the market entry are high. The beer industry is a heavy investment industry and hence most investors would not be able to access such markets. In the United States, merger and acquisitions regulations are under the Clayton Act. Although many advantages associated with mergers and acquisitions, companies take advantage of their enhanced market power, their bigger market share and reduced number of rivals and this can unfavorably affect value to the consumer (Gillespie & Welch, 2011). Costs associated with antitrust behavior

The two companies had reached agreements and many costs incurred in the negotiations and laying the groundwork for the merger. These include paying consultants, lawyers, documentations and feasibility analysis. The litigation costs are also part of the costs in this case. The tarnishing of the image of the two companies is considerable since the public will see the intended move as a way to exploit the public. The companies will need to use resources reclaim their image. Monopolies and Oligopolies

Monopoly structure refers to a dominant structure by one seller in the market while for oligopoly structure market, a number of sellers dominate the market. No, monopolies and Oligopolies are not always bad. Consider an example of a natural monopoly that emerges out of increased sales and increased capacity hence enjoying economies of scale and a further decrease in unit cost that is passed to the consumer. Government monopolies are those created by the government for the purposes of ensuring critical and sensitive services are catered for in the best way. Examples include money-printing firms, and weapon production corporations. This does not necessarily operate efficiently and actually in most cases they are inefficient and hence fail to utilize resources optimally (Fisher & Konieczny, 1995). Most government created...

References: Fisher, T. C., & Konieczny, J. D. (1995). The relative rigidity of oligopoly pricing. Economics
Letters, 49(1), 33-38.
Elzinga, K. G. (2011). The US Beer Industry: Concentration, Fragmentation, and a Nexus with
Wine
Jacobson, J. M., & American Bar Association. (2007). Antitrust law developments (sixth).
Chicago, Ill: Section of Antitrust Law, ABA.
Kintner, E. W., Bauer, J. P., & Kratzke, W. P. (1980). Federal antitrust law: a treatise on the
antitrust laws of the United States
Modigliani, F. (1969). New developments on the oligopoly front. J. Reprints Antitrust L. &
Econ., 1, 227.
Gillespie, N. I. C. K., & Welch, M. (2011). Death of the Duopoly. Wall Street Journal.
Stiglitz, J. E. (1973). Approaches to the Economics of Discrimination. The American Economic
Review, 63(2), 287-295.
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