Brand-supermarket level demand for breakfast cereals and multidimensional competition

Date of Completion

January 2006


Economics, Agricultural




In this study, a discrete choice random coefficients brand level demand model for ready-to-eat cereals (RTECs) is estimated at the supermarket chain level in the Boston area. The retail format of the supermarket chains is modeled as part of the brand characteristics, implying that consumers take into account the supermarket chain characteristics when they choose their preferred brands. Then, assuming a manufacturer Stacklberg model for vertical pricing, the market channel profit is decomposed between the retailers and the manufacturers. The study estimates the demand for 37 brands of RTECs, which are then used to compute the price-cost margins (PCM) for individual brands at four supermarket chains. The results shed light on the share of channel profits accruing to RTEC manufacturers and retailers. For instance, Stop & Shop, the leading supermarket chain in Boston, gets more than 50% of the channel profits, while RTEC manufacturers get more than 56% of the channel profits when dealing with smaller supermarket chains (Shaw's, DeMoulas, and Star Market).^