Brand-Supermarket Demand for Breakfast Cereals and Retail Competition
Texas Tech University - Department of Agricultural and Applied Economics
Rigoberto A. Lopez
University of Connecticut - College of Agricultural, Health and Natural Resources
American Journal of Agricultural Economics, Vol. 89, No. 2, pp. 324-337, May 2007
The Berry, Levinsohn, and Pakes (1995) market equilibrium model is extended to the supermarket chain level to examine consumer choices and retail competition for thirty-seven brands of breakfast cereals in Boston. Estimated taste parameters for product characteristics vary significantly across consumers. Although consumers are price-sensitive with respect to their chosen cereals, they exhibit strong brand and supermarket loyalty. Retail markups increase and marginal costs decrease with grocery market shares, attesting to oligopoly power with efficiencies. Markups decrease with the own-price elasticity of demand, with Corn Flakes having the highest markups. A detailed picture of consumer response and supermarket competition is provided.
Date posted: July 26, 2007