Coke Vs Pepsi Analysis

Since Coke and Pepsi are perfect substitutes, the price elasticity of demand should be perfect elastic. However, there are some factors that results in a fairly elastic demand. When Coke increases its price, most of its customers that are highly sensitive to price changes will switch to Pepsi due to the similarity of the taste. Nevertheless, part of its customers that are highly loyal are willing to pay more for Coke because they placed Coke as their only preference. This can be proven in a blind test between Coke and Pepsi which Pepsi conducted to determine the preferences of cola drinkers. The results shows most of the participants preferred the taste of Pepsi but they still argued that Coke is their brand of choices (Tanner, 2012). This

Both the companies will invest a lot on extensive advertising to differentiate their products and gain higher sales. There are minor differences between both of them, which is Coke contains less sugar and calories as compared to Pepsi. They differentiate themselves by the nutrition level of the cola. The economic profits that they earned is sufficient to finance their research and development of products and improve the existing ones. Coke has come up with Diet Coke to gain more market share as compared to Pepsi, which is standing alone and competing with the two Coke products. In the cola wars back in 2010, Coke has successfully gain more sales by the regular Coke as #1 (sales of 1.6 billion) and Diet Coke as #2 (sales of 927 million), whereas Pepsi as #3 (sales of 892 million) in the entire industry (Cardenal, 2013). Diet Coke has successfully grown the business and captured more market share in the industry. The expenditures that both companies spent on advertising will shift the demand curve to the right, results in a higher price and

In oligopoly, the smaller the number of firms, the more difficult for new rivals to enter the market. This is due to the majority market share is owned by Coke and Pepsi and they are large enough to serve and control the entire industry. Coke has been dominated the market since 1886 and followed by Pepsi 13 years later. They are now well established, they have the most advanced technology to reduce the cost of production; they know their customers very well; their products are widely available. They also have their own well-managed distribution channels, suppliers and bottlers. Most importantly, Coke and Pepsi are the two main dominants that serve the entire market so they will get a large sales volume. Thus, they gain supernormal profits and experience significant economies of scales over the years. When new rivals enter the market, they will lower the price and new rivals have to follow. After a period of time, even though they are making loss, they tend to survive; but new rivals will unable to survive due to the loss and quit. The action of increasing price is to protect the industry from being shared by new firms and to maintain the market shares of theirs. Besides that, brand loyalty is what kills the new rivals. Coke and Pepsi are both very strong brand and they have high recognition across the globe as well as copyrights and registered trademarks as their legal protections by the government. Hence,