Oligopoly Paper: Breakfast Cereal Manufacturing - Top 4 Firms: Kellogg, General Mills, Pepsico (quaker), and Post Foods

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- Compare the 1997, 2002, 2007, and 2012 data for number of firms in your industry. Present these data in a table and analyze that data. Use the trend you observe to describe the change (if any) in Market Structure for your industry.

Year

Number of Firms

Firm Concentration

Percent of Total Value

1997

48

4 Largest Companies

82.9%

8 Largest Companies

93.5%

20 Largest Companies

99.2%

2002

45

4 Largest Companies

78.4%

8 Largest Companies

91.9%

20 Largest Companies

98.8%

2007

35

4 Largest Companies

80.4%

8 Largest Companies

91.9%

20 Largest Companies

99.6%

2012

37

4 Largest Companies

79.2%

8 Largest Companies

93.7%

20 Largest Companies

99.8%

Based on the data demonstrated in the table above, it is clear that the number of firms is decreasing, however the concentration ration of the top 4 and top 8 firms is increasing. It seems as if firms leave the industry, the top firms become larger, increasing their concentration in the industry. However, the overall market structure of this industry seems to be maintaining its stability. Since the data from 1997, the top four firms have maintained their concentration throughout the years.

- Expand your search to include the top firms, as found in the Hoovers Online database. Describe the combined market share for the top four firms in your industry. Report their respective market shares in a table. (Breakfast Cereals In the United States, p. 12, 2015).

Company

Percentage of Market Share

Kellogg’s

28.6%

General Mills

27.2%

Post Foods

17.9%

PepsiCo (Quaker)

5.7%

- Do firms in your industry have large advertising expenditures?

The top firms in the breakfast cereal manufacturing industry have incredibly large advertising expenditures. According to Advertising Age, when Kellogg’s was first starting their advertising campaign their expenditures went up quite quickly. In 1906 Kellogg’s spend around 90,000 dollars on advertising and quickly jumped to over 300,000 dollars in 1907. Jumping ahead a few decades, in 1940 Kellogg’s total advertising expenditures had surpassed 2.3 million, with 1.5 million in print and 860,000 in network radio. However, according to Statista, Kellogg’s advertising expenditure has decreased slightly over the past few years. In 2010, Kellogg’s spend around 1.13 billion dollars on advertising and 1.12 billion in 2012, whereas in 2015 they have significantly decreased their advertising expenditures to around 898 million dollars.

General Mills, also one of the top firms in the industry was spending around 1.4 million in magazines and 2.8 million on radio in 1937, making it the one of the top radio advertisers (Advertising Age). In 1956, General Mils became the number four advertiser with expenditures over 77.7 million dollars. Between the years of 1958-59 the company reached 96 million dollars in advertising expenditures. Jumping to 2013, General Mills’ spent approximately 246 million on specifically cereal advertising in the United States, and 775.3 million on television advertisements.

Post Foods has stepped up their advertising game significantly, considering they are competing with two firms with such a high standing. According to Cereal Facts, in 2008, Post Foods spent 4.3 million on just advertising their famous Honeycomb cereal. Post’s total advertising expenditure in 2008 was around 11.8 million, which is significantly less than the two top firms. In 2011, Post Foods spent 6.7 million on television advertising, 5.2 million on magazines, and half a million on internet advertising. Their total advertising expenditures for the year 2011 came out to be around 13.8 million dollars. I

Quaker spent a little over 12.2 million dollars in 2008 advertising just two of the famous cereals, Life and Cap’n Crunch (Cereal Facts). Advertising Age shows that PepsiCo spent 60 million on advertising for Quaker in 2011. However, according Advertising Age, Quaker spent around 17 million on advertising their television campaigns throughout 2014.

- Are there other types of product differentiation that these firms use aside from advertising?

Between the major firms in the industry there is minimal to no product variation in the. Due to the oligopolistic nature of this industry there is not much need for competition and variation due to the products high demand. According to Matthew Roy (1997), Price competition is almost nonexistent between these companies and no company has any clear dominance over any of the others.

When it comes to product variation specifically, each firm has a variation of products including sugary cereal, oatmeal’s, corn flakes, and cereals with added health benefits. Each firm is quite diversified in other products they produce. The companies produce a range of name