[dghlsakjg]

What it costs to produce is irrelevant in an equilibrium price for supply and demand. I'm not sure you do understand.

Many people are buying the cereal for $8. Its that simple.

There is enough demand for it at $8 that the company is happy with the market clearing their supply at that price point.

If people were not buying the cereal at that price, they would lower it, or have gone out of business by now.

If someone could produce a substitute for far cheaper, and undercut, they would, and they do, but consumers are partial to name brands.

Cheerios are $5 at Walmart, People are buying them. Those people that think that $5 is too much can and do buy the $2 off-brand alternative.

[ricardobeat]

> If someone could produce a substitute for far cheaper, and undercut, they would

Not when a cartel controls 97% of the market, distribution, placement, and is very keen on maintaining the status quo, as posited by the article.

[creer]

At least in high population places like much of California, nobody controls distribution and placement to this degree. If you are not happy with Safeway - and there is no reason to be - you can buy some product categories at the other chains, at walmart or Costco, unpackaged at specialized grocery stores, at several kinds of ethnic grocery stores, even at eastern european grocery stores. And that's before getting to online, long distance, grocery delivery which is not even always out of the question on price. ALL of these are functional. We do have a lot of choice currently.

[arrosenberg]

Thanks for quoting the textbook at me. Does that seem like a competitive market to you?

It shouldn't, because if it was, the cost would be pushed down near it's landed cost. That's a result of companies (both CPG producers and food market retailers) having concentrated market share in contravention of the law.

[fsckboy]

there is also competition for limited/expensive shelf space in the supermarket and only-so-much advertising media that must be shared with all other products

I'm old enough to remember that there used to be choices for different brands of various types of flakes: people use their dollars to exercise choices in the space of products to choose from, and they aren't any longer looking for a "dirt cheap corn flake shootout"

yes, there are also nonlinearities like minimum viable factory size, which leads to market concentration heading toward monopolization, but those factors are not specific to corn flakes nor driving that market.

did you know that Frosted Flakes are actually just stale corn flakes that are revived by spraying them with sugar? I used to work for a company modelling factory automation, and that was part of the model. So, if you don't sell sugar cereals, you're not as efficient.

[dghlsakjg]

Here's your competition. Literally $1.97 cereal that is a direct substitute for Cheerios: https://www.walmart.com/ip/Great-Value-Honey-Nut-O-s-Oat-Bre...

The competition is clearly Cheerios which sells for $4.93, which is still not $8 (I did find Cheerios priced above $8 at other stores, but only in family and giant size which are 50-75% larger): https://www.walmart.com/ip/Honey-Nut-Cheerios-Heart-Healthy-...

I'm not making up the numbers. Or the substitutes. Every grocery store I go to has name brand cereals, and then in the exact same aisle, off-brand alternatives that sell for far less.

So yeah it seems like a pretty competitive market to me if I can buy an alternative for 40% of the price of the name brand by reaching for a lower shelf. Is $5 a lot for a box of cereal? Maybe, that's up to you as the consumer. But, name brand cereal is also not a necessity, you can live a very happy life, eating healthy breakfasts without ever having touched a box of cereal.

Again, it seems like a pretty competitive market. Cereal is not a necessity, there are tons of other breakfast foods that substitute just fine, there are a variety of companies selling more or less substitable products through a variety of outlets, and there are no real regulatory barriers to entry. If I don't like one retailer, I can choose from dozens of others owned by different companies. If you think that there is a ton of margin being made, this is your opportunity to get rich selling cereal, or even just investing in General Mills (which has a profit margin of 12% on their goods, and has under-performed the stock market as a whole).

If you don't like the price of an $8 box of cereal, go buy the $5 one, or the $2 one, or don't buy any cereal at all and eat yogurt, or order from Amazon.com where you can get the best of all worlds by having name brand Cheerios brought to your door for $1.99: https://www.amazon.com/Honey-Cheerios-Gluten-Free-Cereal/dp/...

[afro88]

But why is all that cereal $8? Where's the competition driving prices back down?

[creer]

This is a misunderstanding. There is no reason for SOME cereal to not be $8. Competition will not make ALL substitutable products go to the lowest price. The question is whether all cereal is there, or at least all plausibly substitutable cereal is there. And it's not. Someone else did the research, even if you want brand name Cheerios, there is still a lot of range in prices. Unfortunately many people are not THAT price driven, clearly.

Now, all these grocery store do have something in common. They are all in California (if we pick that state), so they all share the high cost of real estate, the high cost of custom formula gas, the high taxes, etc, etc, etc.

And the fire truck example, it correct, is much more of a problem. It's not hard to manufacture breakfast cereals (and clearly not THAT hard to distribute them) or to bring potatoes to restaurants! It's much harder to build reliable fire trucks.

[dghlsakjg]

I will emphasize: because people are paying that much for it. Willingly.

The competition is at Amazon, where I can buy a box of Cheerios, delivered, for $1.99. Or at Walmart where I can buy name brand cereal for $5, and Walmart equivalents for $1.97.