FTC Reports on U.S. Carbonated Soft Drink Bottling Industry and Antitrust Policy Since 1980

Period Characterized by Rapid Structural Change that Transformed the Industry

Staff of the Federal Trade Commission today released a report examining U.S. antitrust policy in the 1980s and early 1990s in the nation's carbonated soft drink (CSD) bottling industry. Titled "Transformation and Continuity: The U.S. Carbonated Soft Drink Bottling Industry and Antitrust Policy Since 1980," the report was written by the Commission's Bureau of Economics*. It documents the extent of the structural changes in the CSD bottling industry, and is designed to help assess the antitrust merger policies that were pursued during what it terms "an era of rapid restructuring" within the industry. To analyze these policies an econometric regression model is presented, focusing on the local price and quantity effects associated with various types of bottling acquisitions during this time period.

Organization of the Report

The study begins with a historical sketch of the CSD bottling industry, including an overview of its antitrust history. It then presents statistics and text describing changes in the structure and operation of the CSD industry, focusing on the last two decades, followed by a description of theoretical considerations that underlie the model used to examine the competitive effects of the industry's horizontal and vertical consolidation on price and per capita volume levels, as well as to evaluate antitrust merger policy toward the industry.

Next, the data used to estimate the empirical model are described and summary statistics for that data are provided. This is followed by a presentation of overall econometric results, along with a comparison to results obtained in earlier studies of antitrust policy toward CSD bottling acquisitions.

The conclusion of the report is followed by details regarding bottling collusion cases, data sets used in the study, variables used in the model presented, and detailed regression analysis results.

Breadth of the Study

According to the report, the data set used for the statistical analysis represents a substantial improvement over earlier CSD research efforts for a variety of reasons, including the fact that it considers many events corresponding to a wide range of policy questions, rather than focusing on a single structural change such as vertical integration. The report is also unique in that it examines industry performance over three periods spanning more than 10 years, rather than being limited to a single relatively short-term time horizon.

Further, the study uses both CSD price and per capita volume regressions (rather than one or the other) to evaluate CDS performance, and examines local CSD performance across all of the major CSD brand groups, rather than relying exclusively on individual company (and individual package size) observations or aggregating private label and warehouse brand sales with sales of major brands. In addition, all of the study's regression results are based on data for dozens of local areas, as opposed to using just a handful or fewer local areas to perform empirical tests. Finally, the study includes a more complete set of explanatory variables than previous industry examinations.

Results of the Study

The study offers three specific conclusions regarding the antitrust policy and the CSD bottling industry in the 1980s and early 1990s:

• Horizontal franchise acquisitions by Coca-Cola and Pepsi-Cola bottlers led to higher CSD prices and lower per capita CSD volumes, as hypothesized. On average, these transactions were associated with CSD prices that were 3.5 to 12.8 percent higher than otherwise, and per capita CSD volumes that were 12.2 to 19.8 percent lower than otherwise.

• Vertical integration was associated with lower CSD prices for alternative measures of the degree of vertical integration (as hypothesized), but had mixed results in the per capita CSD volume regressions using the three data sets. On average, vertical acquisitions that resulted in both the Coca-Cola Company and PepsiCo controlling their bottlers lowered CSD prices by 4.3 percent.

• The results for third bottler consolidations varied with the market shares of the franchises being acquired. On average, large franchise acquisitions were associated with lower CSD prices (1.2 %) and higher CSD volumes (14.0 %). In contrast, small franchise acquisitions were associated with higher CSD prices (5.5%) and lower per capita CSD volumes (13.2%) on average.

In summary, the study concludes that "the results strongly support government decisions to challenge large 7UP and Dr Pepper franchise acquisitions by Coca-Cola and Pepsi-Cola bottlers. The empirical results show these acquisitions to be generally associated with higher prices and lower per capita volumes."

In addition, "the results are consistent with the government's decision not to challenge Coca-Cola Company and PepsiCo acquisitions of their respective bottlers." The findings, according to the report, "show vertical integration, in one form or another, to be generally associated with lower prices." However, the volume results are sensitive to "changes in the definition of what constitutes vertical integration."

Finally, the study states that while the results are "generally consistent with prior expectations and with recent antitrust policy in the CSD industry," some -- particularly those associated with vertical integration -- suggest that further study is warranted.

*While the Commission has authorized the Bureau of Economics to release the report, it is not intended to represent the views of the Commission as a whole, or any individual Commissioner in particular. The authors of the report were Harold Saltzman, Roy Levy and John C. Hilke.

Copies of the report are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.