Market Conduct in the U.S. Ready-to-Eat Cereal Industry
Product differentiation is well established as being the key source of the cereal industry’s high price-cost margins. However, there is little consensus as to whether pricing collusion is also a source of profitability, and indeed, whether price even serves as a strategic variable in this industry. This paper seeks to resolve this debate by determining whether cereal firms strategically interact on price, and if so, estimating the extent that this increases margins relative to what perfect collusion among firms could achieve. Firms are estimated to cooperate on price to the extent that margins are 2.5 percentage points higher than what is possible under a Nash-Bertrand game. This raises margins by about 43% of what could be achieved under a perfectly executed agreement to fix prices. The results are consistent with studies in the literature that characterize the industry’s pricing as "approximately cooperative."
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Article
- Delineating the Relevant U.S. Sweetener Markets
- Risk and Transactions Cost in Contracting: Results from a Choice-Based Experiment
- Economics of Private Labels: A Survey of Literature
- Promotion Carryover as a Missing-Data Problem
- Consumers' Responses to Front vs. Back Package GM Labels in Japan
- Strategic Public Policy Toward Agricultural Biotechnology with Externalities in Developing Countries
- Market Segmentation via Mixed Logit: Extra-Virgin Olive Oil in Urban Italy
- Proving Anti-Competitive Conduct in the U.S. Courtroom: The Plaintiff's Argument in Pickett v Tyson Fresh Meats, Inc.
- Market Conduct in the U.S. Ready-to-Eat Cereal Industry
- Revisiting the Price Effects of Rising Concentration in U.S. Food Manufacturing
- Proving Anti-Competitive Conduct in the U.S. Courtroom: The Plaintiff's Argument in Pickett v. Tyson Fresh Meats, Inc.: Comment
- Proving Anti-Competitive Conduct in the U.S. Courtroom: The Plaintiffs' Argument in Pickett v. Tyson Fresh Meats, Inc.: Response to Comment
