Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry
Volume: Volume 9, No. 2
Issue: Autumn 1978
Pages: pp. 305-327
Authors: Richard Schmalensee
Title: Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry
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.
JEL Classification
Marketing and Advertising (5310)
Technological Change Innovation Research and Development: General (6210)
Industry Studies Manufacturing Food Processing, Tobacco, and Beverages (6318)
Microeconomics Theory of Firm and Industry under Imperfectly Competitive Market Structures (0226)