MEASURING MARKET POWER IN THE READY-TO-EAT CEREAL INDUSTRY
Article Abstract:
The ready-to-eat cereal industry is characterized by high concentration, high price-cost margins, large advertising-to-sales ratios, and numerous introductions of new products. Previous researchers have concluded that the ready-to-eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition. This paper empirically examines this conclusion. In particular, I estimate price-cost margins, but more importantly I am able empirically to separate these margins into three sources: (i) that which is due to product differentiation; (ii) that which is due to multi-product firm pricing; and (iii) that due to potential price collusion. The results suggest that given the demand for different brands of cereal, the first two effects explain most of the observed price-cost margins. I conclude that prices in the industry are consistent with noncollusive pricing behavior, despite the high price-cost margins. Leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality. It is these two factors that lead to high price-cost margins. KEYWORDS: Discrete choice models, random coefficients, product differentiation, ready-to-eat cereal industry, market power, price competition.
Publication Name: Econometrica
Subject: Mathematics
ISSN: 0012-9682
Year: 2001
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NONLINEAR REGRESSIONS WITH INTEGRATED TIME SERIES
Article Abstract:
An asymptotic theory is developed for nonlinear regression with integrated processes. The models allow for nonlinear effects from unit root time series and therefore deal with the case of parametric nonlinear cointegration. The theory covers integrable and asymptotically homogeneous functions. Sufficient conditions for weak consistency are given and a limit distribution theory is provided. The rates of convergence depend on the properties of the nonlinear regression function, and are shown to be as slow as [n.sup.1/4] for integrable functions, and to be generally polynomial in [n.sup.1/2] for homogeneous functions. For regressions with integrable functions, the limiting distribution theory is mixed normal with mixing variates that depend on the sojourn time of the limiting Brownian motion of the integrated process. KEYWORDS: Functionals of Brownian motion, integrated process, local time, mixed normal limit theory, nonlinear regression, occupation density.
Publication Name: Econometrica
Subject: Mathematics
ISSN: 0012-9682
Year: 2001
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SUBJECTIVE PROBABILITIES ON SUBJECTIVELY UNAMBIGUOUS EVENTS
Article Abstract:
This paper suggests a behavioral definition of (subjective) ambiguity in an abstract setting where objects of choice are Savage-style acts. Then axioms are described that deliver probabilistic sophistication of preference on the set of unambiguous acts. In particular, both the domain and the values of the decision-maker's probability measure are derived from preference. It is argued that the noted result also provides a decision-theoretic foundation for the Knightian distinction between risk and ambiguity. KEYWORDS: Ambiguity, Knightian uncertainty, subjective probability, probabilistic sophistication.
Publication Name: Econometrica
Subject: Mathematics
ISSN: 0012-9682
Year: 2001
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