Measuring Market Power in the Ready-to-Eat Cereal Industry
Posted: 11 Jul 2000
This paper examines the view that the ready-to-eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense non-price competition. In particular, I estimate price-cost margins and separate these margins into three sources: (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 the first two effects explain most of the observed price-cost margins. I conclude that prices in the industry are consistent with non-collusive pricing behavior, despite the high price-cost margins.
JEL Classification: L13
Suggested Citation: Suggested Citation