The American Cereal Industry

Paper Summary:

This paper examines how the branded ready-to-eat (RTE) cereal industry in the United States is an oligopoly dominated by four firms: Kellogg's, General Mills, Post and Quaker Oats and how these firms hold a large, though declining, share of the market. Due to low costs of inputs, product differentiation and price discrimination, cereal producers can charge prices well above costs, earning substantial profits. It also discusses how increasing pressure from producers of cheap private label cereals has recently led the big four to break from tradition, slashing prices one by one.
Outline
Abstract
A Short History of Cereal
Structure of the Branded Cereal Industry
Barriers to Entry
Competition in the Cereal Industry
Theoretical Models of the Industry
Price Discrimination

From the Paper:

"Market share in the cereal industry has been declining slightly in the past few years for all four firms. Kellogg's, for instance, held an impressive 41.39% of the market in 1988; only four years later, this number dropped to 34%. One reason is the decline of cereal's popularity as a breakfast food due to the emergence of new, portable options more suited to today's busy lifestyle. More and more consumers now rely on pop tarts, breakfast bars, or a cup of coffee to start of their day. Besides substitute products, the big four's main competition is private label products, also known as store brand cereal. Lacking brand recognition, this cereal is considerably cheaper than any of the brands marketed by the big four."

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