Obviously, you missed the point. The cereal is the exact same thing. The "name brand" is brainwashing through marketing, plain and simple, which proves that "the only trick that works is making the best products at the best prices" is a false statement.
Now you are digging into high level economics. What is going on here is neither brainwashing nor market failure. It is what we call "customer price differentiation". Some recent popularized books such as Freakanomics and The Undercover Economist address this and other issues.
If you remember Econ101, you know that demand slopes downward with price. What this means is some customers are willing to pay more than others for the same item. Various stores use games such as branded cereal or charging for extras to have customers identify themselves and their willingness to pay. They do this because the per unit cost of the cereal is tiny compared to the fixed costs, such as building and maintaining the store itself, providing the prevalent rate of return to the store owners, etc.
To quicken this explanation, let us just look at what would happen if one of the cereals was removed from the isle. There is now only one cereal with one price, which must now cover the fixed costs of the entire store by itself. This one price will fall somewhere between the original two prices, finding a middle-ground. But, as the price of cereal for the price concious has risen they will buy a lower volume of cereal. Meanwhile, the non-price concious will not change their buying habbits noticeably, even though their price has fallen. As such, the one price cereal will find itself priced closer to the original name-brand price than the original store-brand price.
Whatever you do you will not hurt store-owner profits. This is because long-run store profits are dictated by the prevalent rate of return in the economy. If a store earns more, then competitors will open down the street, canibalizing customers and driving down prices. If a store earns less, then the owners will liquidate the store and put their money into other ventures; the loss of competition will allow prices to rise until stores regain equality with the rest of the economy.
So, in a very real since, customer price differentiation causes those that do not care about the price (the rich or otherwise rushed) to subsidize food for those that do (the poor) by convering a disproportionate share of the store's fixed costs thus enabling the store to exist at the lower prices being paid by the poor.
Pricing theory is really quite fascinating, I highly recommend the afore mentioned books. If you look at almost any market you can find customer price differentiation, from airlines to home builders.
If it was really a case of brainwashing then there would not be store-brand products, as everyone would do what they were told and buy the name-brand.
