(FORTUNE Magazine) – When Philip Morris announced on April 15 price cuts of about 20% on its Post and Nabisco ready-to-eat cereals, consumer advocates--not to mention parents who buy truckloads of the stuff every week--chorused that here was proof of the obscene margin between the cost of cereal and its price. And business pundits were quick to draw comparisons to the company's decision, three years before, to slash prices on its premium cigarette brands--a debacle that ended up bleeding profits at all cigarette companies.

Wrong on both counts, boys and girls.

This isn't Marlboro Friday, when Philip Morris's competitors in the cigarette business scurried like crack gerbils to keep up with their market leader. With only 16% of the cereal market, that same Philip Morris can't so quickly force the hand of cereal giants like Kellogg and General Mills. Those heavyweights might well be willing to concede a point or two of market share to hold up their margins.

And what about those margins, folks? Four bucks for a box half-filled with oats, chaff, and sugar--and half-filled with air?

Well, bear in mind that most people don't pay that much. Half the cereal bought in the country carries a coupon--average discount per coupon, 60 cents. Factor in other discounts (three-for-one deals), packaging and marketing costs, and cereal's margins are around 20%--not peanuts but not robbery either. Other margins: Philip Morris cigarettes, 32% in the U.S. Gillette blades and razors: 36%. And they don't even come with a Secret Decoder Ring inside.

--Tim Carvell