Microeconomics Analysis of Coke and Pepsi

This article provides a detailed analysis of the microeconomics of Coke and Pepsi, including their market share, pricing strategies, and market structure. It also discusses the advantages of oligopoly for customers.

Microeconomis Analysis
Nagpal, Sahil (US - Hyderabad)
[Email address]

Answer 1
The two leading companies that have been chosen by us for this assignment are Coke and Pepsi. They
don’t require introduction being the giants of the Food & beverage Industry. Let us study a little about
them-
Pepsi
Pepsi was established in 1965 by Donald Kendall and Herman Lay. It is one of world’s most respected
companies having products that are sold in over 200 countries. Some of its popular brands include:
Pepsi, Lays, Quaker Oats, Lipton, Mirinda, Mountain Dew, Gatorade etc. The company is headquartered
in New York employing 274,000 people around the world. They aim to provide consumer choices and
designed to bring smile to anyone’s face anywhere, anytime. (pepsico.com, 2019).
Coco-Cola
Coco-Cola is an American Company and a retailer, manufacturer and marketer of the nonalcoholic
beverage concentrates and syrups. It was founded by scientist John Pemberton. The Company is
headquartered in Atlanta of Georgia. They are best known for Coke as their flagship brand with certain
other famous brands being Georgia Coffee, Fanta, Minute Maid, Sprite, Smart Water and Costa Coffee.
The company has greater than 2800 products all over the world in over 200 countries making it world’s
largest manufacturer and distributor of beverage (coca-colacompany.com, 2019).
Talking about the market share Coke’s share of market has risen to 17.8% from 17.3%, while that for
Pepsi dropped to 8.4% from 10.3% (Wiener-Bronner, 2019).
Pepsi is a large company than Coke although the market cap of coke is far greater than that of Pepsi
(Mourdoukoutas, 2019).

Answer 2
Both the companies produce a very large variety of products and each product needs to be priced
differently. The price would vary by different geographical location and segment. But, most importantly
there is a very tough competition between the two giant companies so, being the manager of any one of
the company, competitive pricing policy should be followed. Where the prices of the products are to be
decided based on the prices of the competitor. The beverage market is an oligopoly form of market
structure. Both the companies need to form a cartel to determine the price of the product. If any of the
company tries to increase the price of its product then, the customers would very easily shift to the
other company’s product because the products are perfect substitutes of each other.
Along with the competitive pricing policy the company should follow a push and pull strategy to increase
its customer base by providing promotions such as discounts to customers and increase its expenditure
on advertisement to increase popularity of the brand.
Answer 3
When the whole sector of the market is occupied by the little number of big corporations who share the
leadership this type of market structure is known as Oligopoly. This type of market structure arises
where there are very few sellers but many buyers in the market. A few firms tend to dominate the entire
market, but smaller firms do exist in market. Oligopolies are identified by the use of concentration
ratios, that measure the market share proportion that is controlled by the number of firms.
(Opentextbc.ca, 2019).
If the oligopolistic firms compete very hard with each other then it will become a perfect competition
and the firms may be reducing costs and earning almost zero profits. But, if the firms collude with each
other then they may create a monopoly in the market and push the prices even higher. But, oligopolies
are in general mutually interdependent where are the pricing, output and advertising decisions are
taken by comparing the decisions of another firm(s).
Following are advantages of oligopoly for the customers:
1. Stability in the price of similar products may bring an advantage to the consumers as they can
plan and control their spending on those products.
2. Competitive strategies may be followed by the oligopolies which will generate benefits like
lower prices in the market.
3. The high profits that the firms earn may be used to innovate their products which may again
provide benefits to the customers. (Economicsonline.co.uk, 2019)

References
coca-colacompany.com (2019). Business Stories - The Coca-Cola Company. [online] The Coca-Cola
Company. Available at: https://www.coca-colacompany.com/topics/business [Accessed 23 Mar. 2019].
Economicsonline.co.uk. (2019). Oligopoly - characteristics | Economics Online. [online]
Available at: https://www.economicsonline.co.uk/Business_economics/Oligopoly.html
[Accessed 23 Mar. 2019].
Lin, H. (2012). Coca-cola vs. Pepsi: The Economics behind Coke’s Dominance - Economics
Student Society of Australia (ESSA). [online] Economics Student Society of Australia (ESSA).
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behind-cokes-dominance/ [Accessed 23 Mar. 2019].
Mourdoukoutas, P. (2019). Pepsi Beats Coke. [online]
https://www.forbes.com/sites/panosmourdoukoutas/2018/07/14/pepsi-beats-coke/
#1ffe528611d0. Available at:
https://www.forbes.com/sites/panosmourdoukoutas/2018/07/14/pepsi-beatshttps://
www.forbes.com/sites/panosmourdoukoutas/2018/07/14/pepsi-beats-coke/#1ffe528611d0-
coke/#1ffe528611d0 [Accessed 23 Mar. 2019].
Opentextbc.ca. (2019). 10.2 Oligopoly – Principles of Economics. [online] Available at:
https://opentextbc.ca/principlesofeconomics/chapter/10-2-oligopoly/ [Accessed 23 Mar.
2019].
pepsico.com (2019). About the Company. [online] PepsiCo, Inc. Official Website. Available at:
https://www.pepsico.com/about/about-the-company [Accessed 23 Mar. 2019].
Wiener-Bronner, D. (2019). Why Coke is winning the cola wars. [online] CNNMoney.
Available at: https://money.cnn.com/2018/02/20/news/companies/cola-wars-coke-pepsi/
index.html [Accessed 23 Mar. 2019].