Is Anheuser-Busch InBev looking to terminate beer competition around the world?

Blood baths. Complex game theory. China’s National People’s Congress. The only thing missing from this New York Times article is time travel, terminators and Carlos Brito quipping:  “Hasta la vista, baby.” Economy writer Adam Davidson pens an excellent feature dissecting the Anheuser-Busch InBev/Grupo Modelo merger. According to the article yesterday: “The goal of the Grupo Modelo merger, [AB InBev] has stated, is to gear up for the big beer fight of the 21st century.” Sounds a little scary. Davidson gives us a pretty sobering take on the evolution of the global beer industry and how the AB InBev/Grupo Modelo rollup might start to draw up battle lines across the globe. We quote the article:

“For decades, Anheuser-Busch has been employing what game theorists call a ‘trigger strategy,’ something like the beer equivalent of the Mutually Assured Destruction Doctrine. Anheuser-Busch signals to its competitors that if they lower their prices, it will start a vicious retail war. In 1988, Miller and Coors lowered prices on their flagship beers, which led Anheuser-Busch to slash the price of Bud and its other brands in key markets. At the time, August Busch III told Fortune, ‘We don’t want to start a blood bath, but whatever the competition wants to do, we’ll do’ … [But] when Bud and Coors raise their prices, Grupo Modelo’s Corona does not.”

“According to the Justice Department, AB InBev wants to buy Grupo Modelo not because it thinks the company makes great beer, or because it covets Corona’s 7 percent U.S. market share, but because owning Corona would allow AB InBev to raise prices across all of its brands.”

Well, AB InBev made some power moves about two weeks ago that might avoid some of that price gouging in the United States. For those who haven’t been paying attention, here’s the recap:

1. AB InBev (the biggest beer baron in the world, currently a publicly traded company based in Leuven, Belgium) announced it was looking to buy the 50 percent of Grupo Modelo that it didn’t already own (a Mexican beer conglomerate, home to famous American imports like Corona and Pacifico).

2. In January, the U.S. government filed a lawsuit to block the merger of these two giant beer companies, saying the deal would limit competition, lead to higher prices for American consumers and give AB InBev 46 percent of the domestic market.

3. Grupo Modelo has a joint venture with Constellation Brands (a Fortune 1000 company that is a world leader in premium wine). Through its Crown Imports LLC joint venture with Grupo Modelo, Constellation distributes and markets many leading imported beers across the United States, including Corona Extra, the No. 1 imported beer in America. Grupo Modelo had already agreed to sell its half of the joint venture to Constellation Brands in an effort to avoid antitrust concerns. Constellation would pay $1.8 billion to take complete ownership of Crown Imports, and AB InBev agreed to give up its option to buy the rights to distribute Modelo brands in the United States.

Learn a lot more by reading Davidson’s article. It goes everywhere, but that’s kind of cool. One of the more interesting insights comes from a 30,000-ft view — specifically global scale-based consolidation like we’ve never seen in the beer market before. From the article:

“As the traditional beer markets of the United States, Europe and Japan age, the most lucrative markets will be in China, India, Latin America, Eastern Europe, the wealthier countries of Africa and other places where, every single day, millions of young consumers will buy their first legal beer. On this front, AB InBev is already facing staunch competition from Denmark’s Carlsberg, Britain’s SABMiller and Japan’s Asahi. It’s not exactly worried about Sam Adams and Sierra Nevada. These firms are among the many preparing for a global market several times larger than any that has ever existed. This helps explain why we have seen so many mergers in the past few months.”