UCL Jevons Conference
Brands in UK
Merger Control
2 December 2011
Simon Pritchard
Brands at Wholesale
Level: B2B B4 B2C
© Allen & Overy 2011
© Allen & Overy 2011
1
www.allenovery.com
Brands at Wholesale
Level: B2B B4 B2C
Complement or substitute?
Substitute = buyer power leverage
© Allen & Overy 2011
Brands at Wholesale
Level: B2B B4 B2C
© Allen & Overy 2011
© Allen & Overy 2011
2
www.allenovery.com
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois,
© Allen & Overy 2011
5
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
© Allen & Overy 2011
© Allen & Overy 2011
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3
www.allenovery.com
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser
© Allen & Overy 2011
7
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser
and Beck's
© Allen & Overy 2011
© Allen & Overy 2011
8
4
www.allenovery.com
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser and
Beck's, and
• The merger combines the
top three premium brands in
bottled format, Budweiser,
© Allen & Overy 2011
9
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser and
Beck's, and
• The merger combines the
top three premium brands in
bottled format, Budweiser,
Beck's
© Allen & Overy 2011
© Allen & Overy 2011
10
5
www.allenovery.com
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser and
Beck's, and
• The merger combines the
top three premium brands in
bottled format, Budweiser,
Beck's and Corona
© Allen & Overy 2011
11
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser and
Beck's, and
• The merger combines the
top three premium brands in
bottled format, Budweiser,
Beck's and Corona
© Allen & Overy 2011
© Allen & Overy 2011
12
6
www.allenovery.com
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser and
Beck's, and
• The merger combines the
top three premium brands in
bottled format, Budweiser,
Beck's and Corona
© Allen & Overy 2011
13
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser and
Beck's, and
• The merger combines the
top three premium brands in
bottled format, Budweiser,
Beck's and Corona
© Allen & Overy 2011
© Allen & Overy 2011
14
7
www.allenovery.com
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser and
Beck's, and
• The merger combines the
top three premium brands in
bottled format, Budweiser,
Beck's and Corona
© Allen & Overy 2011
15
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser and
Beck's, and
• The merger combines the
top three premium brands in
bottled format, Budweiser,
Beck's and Corona
© Allen & Overy 2011
© Allen & Overy 2011
16
8
www.allenovery.com
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser and
Beck's, and
• The merger combines the
top three premium brands in
bottled format, Budweiser,
Beck's and Corona
© Allen & Overy 2011
17
Case study: InBev / Anheuser-Busch
OFT theories of harm tested in
the on-trade (pub) channel:
• The merger combines the
#1 premium brand in draught
format, Stella Artois, with the
#1 premium brand in bottled
format, Budweiser
• The merger combines the
#1 and #2 premium brands in
bottled format, Budweiser and
Beck's, and
• The merger combines the
top three premium brands in
bottled format, Budweiser,
Beck's and Corona
© Allen & Overy 2011
© Allen & Overy 2011
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9
www.allenovery.com
Brands at Retail Level:
B2C
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Nationally-branded specialist chains
–  Some key UK Phase IIs involving mergers of close brands
–
(2005; diversion of 52-62% locally)
–
(2007; diversion of 42-52%)
–
(2009; diversion of 30-54%)
–  CC clears all due to supermarkets, online rivals, independents
–  But found that
= a market (2:1) (2010)
- cleared as SD only buying 31 stores, no material national merger effect
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© Allen & Overy 2011
despite
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Ranking brand preferences – and stickiness
–  Implicit in CC analysis: 1st and 2nd- ranked preferences for brands/location
not ‘sticky’ enough (online and supermarkets can and will poach)
–  Problem: mostly, no rigorous way of testing stickiness at local level
–  In OFT/CC methodology, consumers are asked for 2nd (next-best)
preference if first preference permanently unavailable
–  i.e. when store is closed – forces all to be marginal
–  OFT/CC think this is rigorous elicitation of 2nd preference
–  2nd preference distribution no different as between marginal and infra.
–  Consumers not asked how close their 3rd preference is to their 2nd, or
how wedded are their first and second preferences
–  Should ask: won’t marginal customers have less sticky preferences
than inframarginal, esp. if price is major driver?
–  Bertrand model assumes multilateral effect but need to look actual
contextual evidence at national level, esp. closeness of brands
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Groceries Brands
–  Logic of core groceries merger analysis is that if A loses £1 out of
every £7 sales to B (14.3% diversion = d), B is a close competitor
–  Even if B loses no sales to A (asymmetric)
–  But only: when combined with typical store gross margins (m =25%),
generate a 5% ‘illustrative price rise’  SLC presumption
–  Under GUPPI or IPR formulae, it is the combination of m x d matters
–  But this local merger analysis is driven by diversion, determined
also by store size (# of SKU) and location ahead of brand
–  National brand competition, esp. price perception, to trump
consumer drivers of location (and store size): playing out heavily
–  switching to LADs, Waitrose Essentials, price-matching and besting
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www.allenovery.com
Radio brands: Global/GCap - Midlands

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Radio brands: Global/GCap - London

46% of listeners
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www.allenovery.com
Radio brands: Global/GCap - London
Avge multi-station discount – [10-20%], up to [30-40%]
GCap pre-merger bundle
Global pre-merger bundle

46% of listeners
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Brand repositioning
–  UK Guidelines mention brand repositioning as an efficiency that
could increase product variety (ambivalent effect on prices)
–  Standard to assume that A buys B and retain brands A and B for
purposes of unilateral effects analysis
–  But in Asda/Netto, as in most UK retail cases, A rebrands N’s
stores to A. This might harm those who preferred brand N (and its
retail offer), benefit those who preferred brand A -- now also at the
location of B). But should merger control preserve brands as a
‘loss of choice’? Or just PQRS?
–  In that case, the OFT said that figuring out the welfare effects of
increased competition in the ‘mid-size segment’ (+ Asda) vs. loss of
competition (- Netto) in ‘LAD’ segment was for Phase II
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