Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry

TLDR

The paper analyzes the ready‑to‑eat breakfast cereal industry in the context of a current antitrust case involving its leading producers. The authors use a spatial competition comparison framework, assuming relatively immobile brands, and examine entry into a new market segment in the 1970s. They argue that price‑competition avoidance and focus on new brand introductions deter entry and protect profits, and that the FTC’s proposed remedy would likely improve welfare.

Abstract

This paper presents an analysis of the ready-to-eat breakfast cereal industry based on and related to the current antitrust case involving its leading producers. A spatial competition comparison framework is employed, with brands assumed relatively immobile. It is argued that the industry's conduct, in which price competition is avoided and rivalry focuses on new brand introductions, tends to deter entry and protect profits. Entry into a new segment of the market in the 1970s is discussed. Relevant welfare-theoretic issues are analyzed, and it is argued that the remedy proposed by the FTC is likely to improve performance.