TY  - JOUR
AU  - Nevo,Aviv
TI  - Measuring Market Power in the Ready-to-Eat Cereal Industry
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6387
PY  - 1998
Y2  - January 1998
UR  - http://www.nber.org/papers/w6387
L1  - http://www.nber.org/papers/w6387.pdf
N1  - Author contact info:
Aviv Nevo
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208-2600
Tel: 847/491-8212
Fax: 847/491-7001
E-Mail: nevo@northwestern.edu
AB  - 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.
ER  -