This is an essay to discuss the economics phenomenon with a particular product in the beverage area. Trying to analyze the relationships among the price, demand and supply and other factors in the beverage industry, such as substitute and complement products, market competitors and input prices or costs, etc.
Coke refers to Coca-cola which is a dominant product of the Coca-Cola Company. There are six parts in this essay to display the market structure, factors affecting price, demand and supply, substitute and complement products, elasticity, market competitors and some factors of production of the Coke.
A classification system for the key characteristics of a market, including the number of firms, the similarity of the products they sell, and the ease of entry in to and exit from the market.
It refers to the characteristics of a market that define its structure include the number of firms in that market, the degree to which the products they sell are similar and the ease of entry into, and exit from, the market. Market structure includes, Perfect competition, Monopolistic competition, Oligopoly, Monopoly, etc.
Coca-Cola Amatil (CCA) has been located in Northmead for more than 30 years. CCA is the largest bottler of non-alcoholic ready to-drink beverages in the Asia-Pacific region and one of the top five Coca-Cola bottlers in the world. CCA operates in six countries – Australia, New Zealand, Fiji, South Korea, Indonesia and PNG. Coke is one of the Key brands which occupied a big market share (58%). Major competitors are Pepsi, Schweppes, etc. Analysis of the Coke market structures
As The four-firm concentration rate of the products Coke are more than 50% in Australia, the four firms refer to Coca-cola, Pepsi, Schweppes and Home brand. Which is mean, Coke is in the Oligopoly market structure. Economists define an oligopoly as follows: oligopoly is a market structure characterized by few sellers, either a homogeneous or a differentiated product and barriers to market entry.
Pricing power and policies depending on the Oligopoly
The market power that oligopolies derive from significant barriers to entry means that, like the monopolist, they can earn economic profits in the long run. However, the price-output decision of an oligopolies is not simply a matter of charging the price where MR=MC. Making price and output decisions in an oligopoly depends on the anticipated reactions of the opposing player.
Coca-cola is a dominant firm in this area, which means it can set the price for the carbonated beverages industry and the other firms follow. Following this tactic, Coke is simply matching the price of perhaps, but not necessarily, the biggest firm.
Factors affecting price, demand and supply
There are many different possible reactions that Coke in an oligopoly can make to the price, non-price and out put changes of Pepsi, etc. Four well-known oligopoly models:
1. non-price competition
This model of behaviour explains why advertising expenditures are often large. It also explains why the R&D function is so important to oligopolies. For instance, much effort is put into developing new products and improving existing products. e.g The Australian business delivered a significant improvement in second half trading with revenue growth of 8.9% driven by the combination of volume growth of 2.6% and revenue per case improvement of 6.2%. The highlight for the year has been the success of new products led by Coca-Cola Zero. Since the launch in January, Coke Zero has received outstanding consumer acceptance and very high levels of repeat purchase. As a result, CCA’s market share of the cola category has grown from 75% to 77%. Coca-Cola Zero sales are already achieving more than 75% of Diet Coke monthly volumes, which is well ahead of expectations and for 2006 Coke trademark revenue grew by a record 9%. Over the past 12 months there...
References: Allan Layton, Tim Robinson “Economics for Today”;, 3rd ed., Prentice Hall, Harlow.
McTaggart, D, Findlay, C & Parkin, M 2003, Microeconomics, 4th edition, Pearson Education, Australia.
Please join StudyMode to read the full document