Market Conduct in the U.S. Ready-to-Eat Cereal Industry
AbstractProduct differentiation is well established as being the key source of the cereal industrys 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 industrys pricing as "approximately cooperative."
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Bibliographic InfoArticle provided by De Gruyter in its journal Journal of Agricultural & Food Industrial Organization.
Volume (Year): 2 (2004)
Issue (Month): 1 (November)
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Web page: http://www.degruyter.com
Other versions of this item:
- Reimer, Jeffrey J. & Connor, John M., 2002. "Market Conduct In The U.S. Ready-To-Eat Cereal Industry," 2002 Annual meeting, July 28-31, Long Beach, CA 19726, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L4 - Industrial Organization - - Antitrust Issues and Policies
- L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
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