Advanced Search
MyIDEAS: Login

An Econometric Analysis of the Demand for RTE Cereal: Product Market Definition and Unilateral Market Power Effects


Author Info

  • Ronald W. Cotterill
  • Lawrence E. Haller
Registered author(s):


    This research report is the econometric analysis of product market definition and unilateral market power that the senior author presented as expert economic witness for the state of New York in State of New York v. Kraft General Foods et al. at trial in September 1994. It is the first, and to date as of September 1997, only full-scale attempt to present in a federal district court analysis of a merger?s impact using scanner generated brand level data and econometric techniques to estimate brand and category level elasticities of demand. The court rejected this analysis [State of New York v. Kraft General Foods, 926 F. supp. 358 (S.D. N.Y. 1995)]. We think that it should not have done so, and would like to make this work more readily available than the court record so that economists who are working on the analysis of market definition and market power can review it. Also, this study is the only public study to date that has had access to weekly brand level coupon distribution data by city, and Nielsen group rating points (GRP), which are weekly measures of ad exposure for a brand in local city market areas. Thus it provides own and cross brand coupon and advertising elasticities. The empirical results are generally as hypothesized; own advertising and couponing increase sales, competitor activities reduce sales. The genesis of this work during litigation is an interesting story for those who would attempt to do similar work on a merger case. The acquisition of Nabisco Shredded Wheat by Philip Morris via its Kraft General Foods subsidiary occurred in the fall of 1992. Robert Abrams, the New York Attorney General, announced his challenge of the merger in January 1993. For over a year litigation moved through a series of hearings and rulings. In the spring of 1994 and earlier, the state of New York asked via discovery for any scanner data on Ready-to-Eat (RTE) cereal that the defendants possessed. Defendants provided no data. In July 1994, in preparation for the trial that occurred in September/October 1994, the senior author of this report prepared ?Expert Report of Ronald W. Cotterill? [93 Civ. 0811 (KMW)]. Exhibit 6 of that report was an analysis of unilateral market power using brand level elasticities of demand from the business records of the defendants. It documented the exercise of unilateral market power between Post and Nabisco brands. The first section of that exhibit is reproduced as the foreword to this report because it nicely explains unilateral power analysis.1 Defendants responded to this statistical analysis by introducing on the eve of trial (August 29, 1994) in ?Expert Report of Daniel L. Rubinfeld? [their economist] a comprehensive scanner data set for the leading brands of breakfast cereal and an analysis to refute our work. Using the scanner data that finally became available, we had 18 days to produce the analysis presented in this research report. It was presented to the court as Exhibit C in Affidavit of Professor Ronald W. Cotterill, September 16, 1994 (State of New York v. Kraft General Foods et al. 93 Civ. 0811 [KMW]). One of defendant?s responses to this econometric study was to introduce data for four additional brands during trial and claim that their incorporation destroyed a key market definition result of this analysis. In fact, when those brands were included the general conclusions of this study did not change [trial transcript @ Vol. 7, p. 1249]. Defendants also presented other criticisms of this study at trial and we rebutted them. Here we are not presenting arguments made at trial surrounding this report, nor are we presenting any discussion from Judge Wood's opinion wherein she rejects this analysis. A full understanding of this econometric foray into court requires reading of the defendant?s economist expert report, especially the statistical analysis, the trial transcript, and the court?s opinion. The defendant?s economist?s report is briefly critiqued at the end of this report (pages 17-19). It is a classic example of ?garbage in garbage out? analysis. A future report by the senior author of this report will present a complete review.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL:
    Download Restriction: no

    Bibliographic Info

    Paper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Food Marketing Policy Center Research Reports with number 035.

    as in new window
    Date of creation: 1997
    Date of revision:
    Handle: RePEc:zwi:fpcrep:035

    Contact details of provider:
    Postal: 1376 Storrs Road, U-21, Storrs, Connecticut 06269-4021
    Phone: 860-486-2836
    Fax: 860-486-1932
    Web page:
    More information through EDIRC

    Related research

    Keywords: Demand and Price Analysis; Industrial Organization;


    No references listed on IDEAS
    You can help add them by filling out this form.



    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


    Access and download statistics


    When requesting a correction, please mention this item's handle: RePEc:zwi:fpcrep:035. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.