coke war
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BASM 501 7 September, 2003
Cola Wars Continue: Coke and Pepsi in the Twenty-First Century
Submitted By: Bobby Bhalla, Kiarash Owrang (Group #8)
Why is the Soft Drink Industry so profitable?
Coke and Pepsi were among the first to launch carbonated soft drinks. For over a century other companies tried to enter the market but had to face fierce competition and lawsuits from Coke and Pepsi. The worldwide demand for soft drinks in 1999 was 31 billion cases. Coke and Pepsi together held 74% of market share followed by Cadbury Schweppes at 6%. The industry landscape is an Oligopoly, in which participating firms are assured of high long-term economic rents, and there are high barriers of entry for new entrants. Being the established sellers, Coke and Pepsi can persistently raise prices above competitive levels without any significant threat of new entrants (e.g. 1978 Coke had a significant price hike, and Pepsi followed by 15% price increase). The concentrate producers require little capital investment; the cost of goods sold is typically 17% of Net Sales resulting in a Gross Profit of 83% and after subtracting operating expenses the pretax profit is around 35%...