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Mention somewhat control over the price and substantial control
The breakfast cereal industry has a history of being highly concentrated. In 1999, for example, the four largest firms controlled much of the market share. Kellogg's led the industry with a 32% market share, followed by General Mills at 31%, Post at 16%, and Quaker at 9%. Cereal prices were well above the cost of production. A price hike by one firm was typically matched by price hikes from the others.
In fact, the Bureau of Labor Statistics found that the price of cereal increased 90% from 1983 to 1995.
This was two times the rate for other foods. This increase was in spite of the fact that the price of other factors of production, such as ingredients, had gone down.
Each year, the big four firms heavily advertised and distributed millions of coupons to promote consumer loyalty. In 1993, the cereal industry aired more than 1.3 million advertisements. These ads cost $762 million dollars a day (second only to the money spent on car ads). Through this advertising, cereal firms and their brands achieved an impressive level of name recognition. Cartoon characters related to the cereals, such as Snap! Crackle! and Pop! and Tony the Tiger, have become embedded in the minds of children and adults.
Firms also used a strategy of product proliferation. They created an enormous number of brands to cover every possible niche in the market. In this way, they were able to squeeze out new, small firms.
For example, at one point General Mills's Web site boasted more than 65 varieties of breakfast cereal, Kellogg's had more than 45, and Post listed more than 25. By offering so many brands, cereal firms marketed the same core product but with dozens of small variations as a means to limit competition.
Many consumers complained about inflated cereal prices. They even asked the Federal Trade Commission to investigate alleged collusion in 1972. However, the major cereal firms prevailed, partially by contending that they offer coupons to offset rising prices.
