Measuring Market Power in the Ready-to-Eat Cereal Industry / Aviv Nevo.

Format:

Book

Author/Creator:

Nevo, Aviv.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6387.

NBER working paper series no. w6387

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Summary:

The ready-to-eat cereal industry is characterized by high concentration margins, large advertising to sales ratios, and numerous introductions of new products. Previous researchers have concluded that the ready-to-eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense non-price competition. This paper empirically examines this conclusion. In particular, I estimate price-cost margins importantly I am able empirically to separate these margins into three parts: (1) that which is due to product differentiation; (2) that which is due to multi-product firm pricing; and (3) that due to potential price collusion. The results suggest that given the demand for different brands of cereal, the first two effects explain most of the observed price-cost markups. I conclude that prices in the industry are consistent with non-collusive pricing behavior to maintain a portfolio of differentiated products influence the perceived quality of these products, and it is these two factors that lead to high price-cost margins.

Notes:

Print version record

January 1998.