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Harvesting and Tacit Collusion in the Breakfast Cereal Industry: A Case Study of Nabisco Shredded Wheat and Post Grape Nuts

Author

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  • Cotterill, Ronald
  • Franklin, Andrew
  • Haller, Lawrence

Abstract

Shredded wheat was invented in the late 19th century and has been marketed under the Nabisco brand name since 1925. In 1985 the R.J. Reynolds Tobacco Company acquired the Nabisco Company and in 1988 the RJR Nabisco Company underwent a leveraged buyout (LBO) led by Kolberg, Kravis, and Roberts that recapitalized the firm at a record $25 billion (Food Institute Report 1988, P. 2). The firm has continued to struggle under its LBO debt in a fashion that suggests the $25 billion price paid was too high. In September 1992, RJR Nabisco attempted to sell its ready-to-eat (RTE) breakfast cereal unit to General Mills for $450 million; however, the deal fell through because of active antitrust investigation. Two weeks later Nabisco and Philip Morris/Kraft General Foods (Post Cereals) announced a preliminary agreement whereby Philip Morris would acquire the Nabisco breakfast cereal franchise for the same price, $450 million. That deal was consummated in January 1993; however, it was immediately challenged by the state of New York on antitrust grounds. This paper is based to a large extent upon the public record of that ongoing antitrust case and detailed supermarket scanner data on the ready-to-eat cereal industry that the University of Connecticut Food Marketing Policy Center has purchased from Information Resources, Inc.

Suggested Citation

  • Cotterill, Ronald & Franklin, Andrew & Haller, Lawrence, 1994. "Harvesting and Tacit Collusion in the Breakfast Cereal Industry: A Case Study of Nabisco Shredded Wheat and Post Grape Nuts," Issue Papers 160504, University of Connecticut, Food Marketing Policy Center.
    • Handle: RePEc:ags:ucofmi:160504
    DOI: 10.22004/ag.econ.160504
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    Cited by:

    1. Ronald W. Cotterill & Lawrence E. Haller, 1997. "An Econometric Analysis of the Demand for RTE Cereal: Product Market Definition and Unilateral Market Power Effects," Food Marketing Policy Center Research Reports 035, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    2. Ronald W. Cotterill, 1999. "Jawboning cereal: The campaign to lower cereal prices," Agribusiness, John Wiley & Sons, Ltd., vol. 15(2), pages 197-205.
    3. repec:zwi:journl:v:41:y:2012:i:1:p:1-11 is not listed on IDEAS
    4. Ronald W. Cotterill & Andrew W. Franklin, 1999. "An estimation of consumer benefits from the public campaign to lower cereal prices," Agribusiness, John Wiley & Sons, Ltd., vol. 15(2), pages 273-287.
    5. Ronald W. Cotterill, 2007. "Market Definition and Market Power in the British Supermarket Industry," Food Marketing Policy Center Research Reports 098, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    6. Cotterill, Ronald, 1998. "Jawboning Cereal: The Campaign to Lower Cereal Prices," Issue Papers 161559, University of Connecticut, Food Marketing Policy Center.
    7. Cotterill, Ronald W., 2012. "The Evolution of Quantitative Food Marketing Policy: A Public Perspective," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 41(1), pages 1-11, April.
    8. Cotterill, Ronald & Franklin, Andrew, 1998. "An Estimation of Consumer Benefits From the Public Campaign To Lower Cereal Prices," Issue Papers 161560, University of Connecticut, Food Marketing Policy Center.
    9. Haller, Lawrence E., 1995. "The Effects of the Beatrice-Conagra Merger on Brand-level Marketing Strategies," Research Reports 25186, University of Connecticut, Food Marketing Policy Center.

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    Keywords

    Production Economics;

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