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Vertical Relationships In The Ready-To-Eat Breakfast Cereal Market: A Brand-Supermarket Level Analysis

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  • Chidmi, Benaissa
  • Lopez, Rigoberto A.
  • Cotterill, Ronald W.

Abstract

The purpose of this paper is to examine the vertical relationship between the manufacturers of ready-to-eat cereals (RTEC) and the retailers in the Boston area. The study uses highly disaggregated (supermarket and brand level ) monthly data from Information Resources Inc (IRI) from 1995 to 1997.The Logit model is used to estimate the demand for 37 brands of RTEC in the top four supermarkets in the Boston area. The demand estimates are then used to compute the price-cost margins (PCM) for retailers and manufacturers under different vertical scenarios, including vertical Nash double marginalization, non-linear pricing, vertical integration, and collusion. The results of the study shed light on the power each agent (manufacturers and retailers) has to set the price of RTECs in the Boston market, and assess inter- and intra-brand substitution among brands of different manufacturers.

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File URL: http://purl.umn.edu/19916
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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2004 Annual meeting, August 1-4, Denver, CO with number 19916.

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Date of creation: 2004
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Handle: RePEc:ags:aaea04:19916

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Keywords: Marketing;

References

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  1. Aviv Nevo, 2003. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Microeconomics 0303006, EconWPA.
  2. John M. Connor, 1999. "Breakfast cereals: The extreme food industry," Agribusiness, John Wiley & Sons, Ltd., vol. 15(2), pages 247-259.
  3. K. Sudhir, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Marketing Science, INFORMS, vol. 20(3), pages 244-264, October.
  4. David Besanko & Martin K. Perry, 1993. "Equilibrium Incentives for Exclusive Dealing in a Differentiated Products Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 646-668, Winter.
  5. Nevo, Aviv, 1998. "Identification of the oligopoly solution concept in a differentiated-products industry," Economics Letters, Elsevier, vol. 59(3), pages 391-395, June.
  6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  7. Daniel P. O'Brien & Greg Shaffer, 1997. "Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 755-785, December.
  8. Kadiyali, Vrinda & Vilcassim, Naufel & Chintagunta, Pradeep, 1998. "Product line extensions and competitive market interactions: An empirical analysis," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 339-363, November.
  9. Daniel McFadden & Kenneth Train, 2000. "Mixed MNL models for discrete response," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 447-470.
  10. K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Yale School of Management Working Papers ysm229, Yale School of Management.
  11. Gal-Or, Esther, 1991. "Vertical Restraints with Incomplete Information," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 503-16, September.
  12. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
  13. Klein, Benjamin & Murphy, Kevin M, 1997. "Vertical Integration as a Self-Enforcing Contractual Arrangement," American Economic Review, American Economic Association, vol. 87(2), pages 415-20, May.
  14. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  15. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
  16. Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
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