The U.S. breakfast cereal industry’s four largest firms (Kellogg, General Mills,

Question

The U.S. breakfast cereal industry’s four largest firms (Kellogg, General Mills, Post, and Quaker Oats) collectively hold about 80% of total market share. Assume the Federal Trade Commission initiates an investigation to support its claim that these firms constitute a “shared monopoly,” and it seeks to either regulate pricing policy or break-up the two largest firms (Kellogg and General Mills). Using economic reasoning developed in the course thus far, draft a set of arguments to support nonintervention (maintain the status quo) in this industry.

Explanation / Answer

Governments cannot make good decisions - The government just knows what economic constraints the firms are facing not the internal constraints that every firm faces hence it is not in a position to make the correct decisions.

Lack of personal freedom - With government intervention the firms lose their freedom on the operational and other activities in the market.

Efficiency - Efficiency of the firms gets affected as with government intervention the firms are limited to production or price even if the market allows them to produce higher or more cost efficiently.

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