From a competition policy perspective, it is important to distinguish between different sources of market power—such as product differentiation that stems from firms providing unique value to consumers and anticompetitive behaviour like pricing coordination.
The article “Estimating industry conduct using promotion data,” published in the RAND Journal of Economics by CRA’s Christian Michel, with Jose Manuel Paz y Miño and Stefan Weiergraeber, disentangles sources of market power in the ready-to-eat cereal industry, using a structural econometric model to analyse how competition has evolved over time.
The authors find that in the period following a horizontal merger, the industry became more competitive compared to earlier phases which were characterised by partial coordination among cereal manufacturers. This shift culminated in a phase with near-zero wholesale margins. Through a series of counterfactual simulations, the paper further examines how the industry might have developed under alternative competitive scenarios.
