€ In 1981.Coca Cola was formulated in 1886 by John Pamberton. and began brand advertising of Coca-Cola. € In 1919. & introduces vending machine. it went public under control of Robert Woodruff then pioneered open-top coolers for use in grocery store & other channel. € Successful during WWII with the high CSD consumption from the U. a pharmacist in Atlanta. Georgia who sold it at drug store soda fountain as a ´ portion for mental physical disorderµ. established a sales force. Asa Candler acquired the formula.S soldiers. developed automatic dispensers. € .

Pepsi was invented in 1893 in New Bern. 100·s of regional CSD companies & offered a wide assortment of flavors. € During Great Depression grew in popularity due to price decrease to a nickel. claiming that the Pepsi-Cola was an infringement on the Coca-Cola·s trademark.S market was 47% & Pepsi was 10%. and by 1910 Pepsi had built a network of 270 bottlers. 1923 & 1932. € . € In 1950. € Like coke. Coke·s share of the U.North Carolina by Pharmacist Caleb Bradham. Coke sued Pepsi. € In 1938. € Pepsi struggled and declared bankruptcy twice. Pepsi adopted a bottling system.


€ Offering a similar product and branded. € Since in CSD. not one but two firms are dominate.Only a few firms in the market area. € There is a large degree of interdependence with other competitors. it called duopoly. product style or quality. € Actions by any individual firm in CSD industry on output. € Duopoly pairs often study complex tactical scenarios of moves and probable countermoves against one another € . price. introduction of new models.


Soft Drink Industry Porter·s Five Forces Analysis Power of Buyers Power of Suppliers Barriers to Entry Rivalry among established Threat of Substitutes company .

Potential € Competitors Companies that have a door to door distribution channel in place like snack companies could choose to diversify into soda industry € Switching costs are low for consumers who risk very little by trying new brands or beverages € Barriers to entry are relatively high. tea-based drinks. dairy-based drinks. though.1. and especially bottled water . sports drinks. with large advertising budgets and competitive brand loyalty to big players like Coca-Cola and Pepsi € The drinks with high growth and high hype are noncarbonated beverages such as juice drinks.

2. and lower prices € Coca-Cola and Pepsi are among the metal can industry·s largest customers and maintain relationships with more than one supplier. € The Bargaining Power of Suppliers Concentrate producers (CPs) negotiate directly with bottlers· major suppliers ² particularly sweetener and packaging suppliers ² to encourage reliable supply. faster delivery. followed by plastic bottles (38%) and glass bottles (2%) . giving these suppliers less bargaining power due to the availability of alternative suppliers € Metal cans make up the majority of the bottlers· packaged product (60%).

giving less bargaining power to Bottler·s buyers because there is no alternative supplier. € The Bargaining Power of Buyers Bottlers own a manufacturing and sales operation in an exclusive geographic territory. with rights granted in perpetuity by the franchiser. Bottlers are also given freedom in choosing whether or not to carry new beverages introduced by the CPs but cannot carry directly competitive brands Competition for brand shelf space in retail channels gives some bargaining power back to buyers € € € € . Bottlers are locked into contracts that grant CPs the right to set prices and other terms of sale.3. Bottlers are allowed to handle the non-cola brands of other Cps at their discretion. subject to termination only in the event of default by the bottler in1980 Soft Drink Interbrand Competition Act preserved the right of CPs to grant exclusive territories to their bottlers.

€ Exit barriers are high for bottlers with expensive equipment. . € Advertising budgets are high. € International demand for carbonated soft drinks is growing. but domestic demand is slowing down substantially. chocolate milk and so on. milkshakes. Rivalry Among Established Companies 5. € Industry is largely consolidated with two major players and a few smaller competitors like Cadbury Schweppes. making the companies interdependent. tap water.4. € Threat of Substitute Products Threat from substitute products are probably second in importance to the cola industry only to the rivalry among established firms: coffee cafes. hot chocolate. moderate for concentrate producers. hot tea. customers are influenced by brand perceptions. fruit juice.


The most intense battles in the so-called cola wars were fought over the $66 billion CSD industry in the U. Coca Cola & Pepsi vied for a ´throat shareµ of the world·s beverage market. . Control of market share For more than a century. growth in soft drink sales for both Coke and Pepsi was falling short of precedent & of investors· expectations.In the early years of the 21th century.S. Both Coke and Pepsi are trying to gain market share in this industry .

7 14.4 14.PRODUCT Coca-Cola PepsiCo Ca r Sc eppes 2000 (%) 44.1 31.1 31. .7 2004(%) 43.

but Coke soon learned their lesson and started to do the same.Each company is coming up with new products and ideas in order to increase their market share. € . Coke introduce 11 new products and Pepsi introduce 13 products. € The battle for shelf space in supermarkets and other stores became fierce. € In 1980s. € Pepsi has always taken the lead in developing new products.

Low calorie cola Tab (1963) } ‡ Diet Coke (1982) ‡ Caffeine free coke (1983) ‡ Coca-Cola Classic (1985) ‡ New Coke (1985) ‡ Cherry Coke (1985) PEPSI ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Teem (1960) Mountain Dew (1964) Diet Pepsi (1964) Lemon Lime Slice(1984) Product Launch Caffeine free Pepsi Cola(1987) Sierra Mist (2000) Mountain Dew Code Red (2001) Pepsi One (2005) .COKE ‡ Fanta (1960) {Sprite (1961).

especially in foreign countries. acted rapidly. and was always developing new advertising ideas.Pepsi has always taken more risks. € . € In foreign markets. Both companies have also relied on finding new markets. both companies have followed the marketing concept by offering products that meet consumer needs in order to gain market share.


Taco Bell (1986). and Kentucky Fried Chicken (1986).After Pepsi entered the fast-food restaurant business by acquiring Pizza Hut (1978). € In 2005 Pepsi supplied all Taco Bell and KFC restaurants and the great majority of Pizza Hut restaurants. € . while Pepsi grabbed the Quiznos account from Coke. € Its remained vigorous in 2004. Coke won the Subway account away from Pepsi. Coke persuade Wendy·s and Burger King. and Coke retained exclusively deals with Burger King and McDonald·s.

Supply to Taco Bell. KFC & Pizza Hut Pepsi grabbed Quiznos from Coke Supply Burger King & Mc· Donald Coke won the subway account from Pepsi . KFC (1986). Burger King (1978). Taco Bell (1986).PEPSI COKE Acquired Pizza Hut Wendy·s .


€ Our proposal to solve this case is to use The Cournot Model This is an oligopoly model. proposed by the French economist Augustin Cournot.µ € € . the firms compete on the basis of quantity rather than price and each firm makes an ´output decision assuming that the other firm·s behavior is fixed. The models assumes that there are two ´equally positioned firmsµ.

each firm's output decision affects the good's price. ƒ Firms do not cooperate. ƒ Firms have market power.€ It has the following features: ƒ There is more than one firm and all firms produce a homogeneous product. and choose quantities simultaneously. i.e. there is no product differentiation. i.e. ƒ The number of firms is fixed.e. i. ƒ Firms compete in quantities. usually seeking to maximize profit given their competitors' decisions . ƒ The firms are economically rational and act strategically. there is no collusion.

So. € € € . we can conclude that the Cournot Model is the best solution in order to solve the issue encountered between them. If Coke observes Pepsi producing 30mill units of output in the current period. then Coke will seek to maximize its own profits assuming that Pepsi will continue producing the same units in the next period.€ Since Coke and Pepsi competing in quantity rather than price. This pattern continues until reaching the long-run equilibrium point where output and price are stable and neither firm can increase its profits by raising or lowering output. Pepsi will act as similar manner as Coke.


but not as low as with perfect competition. € . but lower than perfect competition Price is lower with Cournot duopoly than monopoly.€ Output is greater with Cournot duopoly than monopoly.