Assignment Econs (Oligopoly)

8/9/2019 Assignment Econs (Oligopoly)

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UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINANCE

ACADEMIC YEAR 2013/2014May Trim !" r 2013

UBEA1013 ECONOMICS

C#$ r %a& #' A!!i&(m ("

TOPIC: Question 5 (OLIGOPOLY)

Name: Student ID No.: Section Prepared !

". L## C$## $%I "&' *5Game T+eor!

&. #S,OND Y#'PT$#NG SI'NG " ' "-

Game T+eor!/in0ed Demand Cur1e

. /$O2 SOO /'I " ' 53/in0ed Demand Cur1e

4. P%' S$I $%I " ' &&4C+aracteristic o

O6i7opo6!

5. 8OONG 9#I S'N " ' *&4Introduction

N',# O8 T%TO2: ,S. T$' ','L'2 ';P G'N'P'T$Y

Table of Contents



76ass ?ecause o ne@ drin0s. Pem?erton s partner and ?oo00eeperA 8ran0 2o?inson @as

su77ested t+e name as Coca<Co6aE and @rote out uniBue script t+at is amous a66 o1er t+e

@or6d toda!.

1888-1891

'sa Gri77s Cand6erA a natura6 ?orn sa6esmanA @as comp6ete o@ners+ip o t+e Coca<Co6a rom

Pem?erton F& . Cand6er +ad introduce ?! 7a1e a@a! coupons and prepared distri?utin7

p+armacists @it+ c6oc0sA urnsA ca6endars and apot+ecar! sca6es ?earin7 t+e Coca<Co6a ?rand.

1894

>osep+ ieden+arnA ,ississippi ?usinessmanA @as t+e irst to put Coca<Co6a in ?ott6es. $e

@as sent "& ?ott6es to Cand6erA @+o responded @it+out interest.

1900-1909

T+e Coca<Co6a Compan! @as 7re@ rapid6! and mo1in7 into CanadaA PanamaA Cu?aA Puerto

2icoA 8rance and ot+er countries and us territories. T+e! a6so introduced t+eir ?ott6in7

tec+no6o7! @+ic+ impro1ed e icienc! and product Bua6it!. In "3 3A a6most 4 Coca<Co6a

?ott6in7 actor! @ere unctionin7A most o t+em ami6!<o@ned industr!. Some o t+em open

on6! durin7 +ot<@eat+er mont+s @+en demand @as +i7+.

1916

Coca<Co6a Compan! @as decided to create a uniBue ?ott6e s+ape to di erentiate t+e rea6

Coca<Co6a e1en in dar0 t+at !ou cou6d identi ! t+e 7enuine artic6e.

1923-1928

#rnestA at+er o 2o?ert 9oodru @as ?ou7+t t+e compan! rom 'sa Cand6erA 9oodru

?ecame t+e corporation s +ead. 9oodru 6ed t+e e=pansion o Coca<Co6a to a?road and to t+e

O6!mpic Games @+en Coca<Co6a tra1e66ed @it+ %nited States team to t+e "3&* 'msterdamO6!mpics. ,oreo1erA 9oodru e ort to pus+ed pro7ress and supp6! o t+e si= pac0 to made

easier or peop6e to drin0 Coca<Co6a at +ome or a@a!.

1941

Durin7 9or6d 9ar IIA t+e ur7ent reBuest or ?ott6in7 eBuipment and materia6s rom Genera6

#isen+o@er. T+ere oreA t+is @as en6ar7in7 t+e ?ott6in7 s!stem and acce6eratin7 t+e 7ro@t+ ot+e Compan! s @or6d@ide ?usiness.



1960

Coca<Co6a Compan! decided to e=pand @it+ ne@ 6a1ours suc+ as 8anta in "35 A SpriteA

,inute ,aidA 8resca and T' in "3 . ,r. Pi?? and ,e66o Ye66o @as added in t+e "3- s. In

"3* sA Coca<Co6a Compan! ?rou7+t diet Co0e and C+err! Co0eA o66o@ed ?! PO9#2'D#and D'S'NI IN "33 s.

1970

T+e retai6ers @+o so6d Coca<Co6a com?ined and de1e6op into internationa6 me7a<c+ain due to

tec+no6o7! 6ed to a 76o?a6 econom!. T+ere oreA man! sma66 and medium<si e ?ott6ers

com?ined to ?etter ser1e 7iant internationa6 customers. Coca<Co6a Compan! @ere

encoura7ed and in1ested in a num?er o ?ott6er conso6idations to ma0e sure 6ar7est ?ott6in7

partners @ou6d +a1e capacit! to 6ead t+e s!stem in @or0in7 @it+ 76o?a6 retai6ers.

1990

T+e Coca<Co6a Compan! @ere 7ro@in7 or instance in 6on7 association @it+ sports suc+ as

O6!mpic GamesA 8I8' 9or6d Cup oot?a66A t+e 2u7?! 9or6d Cup and t+e Nationa6

as0et?a66 'ssociation.

Coca-Cola’s Mission

Coca<Co6a mission is endurin7 and states t+eir reso6ution as a compan! and ser1es as t+e

standard a7ainst @+ic+ @e @ei7+ our actions and decisions @+ic+ is to reHu1enate t+e @or6dA

encoura7e moments o optimism and +appinessA create 1a6ue and ma0e a di erence and

more.

Coca-Cola’s Vision

Coca<Co6a s 1ision ser1es as t+e structure or t+eir roadmap and 7uides e1er! part o t+eir ?usiness ?! descri?in7 @+at t+e! need to accomp6is+ in order to continue ac+ie1in7

sustaina?6eA Bua6it! pro7ress.

• eo!le" e a 7reat p6ace to contri?ute @+ere peop6e are moti1ated to ?e t+e ?est t+e!

can ?e.

• ortfolio" Introduce to t+e @or6d a se6ection o Bua6it! ?e1era7e ?rands t+at anticipate

and p6ease peop6e s desires and needs.

http://www.coca-colacompany.com/brands/all

http://www.coca-colacompany.com/brands/all



• artners : Cu6ti1ate a @innin7 net@or0 o c6ients and pro1idersA to7et+er t+e! create

mutua6A 6astin7 1a6ue.

• lanet" e a 6ia?6e in+a?itant t+at ma0es a c+an7e ?! aidin7 in constructin7 and

support sustaina?6e communities.

• rofit" ,a=imi e 6on7<term return to stoc0+o6ders @+i6e ?ein7 t+ou7+t u6 o t+eir

@+o6e responsi?i6ities.

• ro#$cti%ity" #=treme6! e ecti1eA 6ean and ast< or@ard or7ani ation.

History of e!si

1898

Ca6e? rad+amA p+armacist and dru7store @as mi=ed up @it+ spicesA Huices and s!rups to

create a ne@ drin0 ca66ed rad s Drin0EA ?ut it @as renamed ?ecome PepsiE A ma!?e due to

t+e in7redients +a1e di7esti1e en !mes suc+ as peps and 0o6a nuts. Due to t+e pro7ressi1e

eed?ac0s o +is samp6ersA +e decided to ?e7in pu?6ici in7.

1903

rad+am @as trans er t+e ?ott6in7 o t+e drin0 rom +is dru7store to a rented store. ,oreo1erA

+e @as se66s -3 * 7a66ons o s!rup in t+e irst !ear o operation.

190&

Pepsi<Co6a Compan! +a1e created irst o icia6 6o7o ?ut it @as c+an7ed in "3& and t+en

a7ain in "3&3. In "3 3A Pepsi @as introduced to a66 o1er t+e @or6d t+rou7+ its irst ce6e?rit!

ad1ocateA arne! O6d ie6d.

1931

Pepsi<Co6a Compan! @as dec6ared ?an0rupt due to sudden rise and a66 in t+e su7ar price

?ecause o 9or6d 9ar I. Pepsi mana7ed to stand once a7ain to a7ainst t+e pressure o t+e

Great Depression.

1936

"&<ounce ?ott6es o t+e so t drin0 @ere re<introduced at t+e prices o " cents eac+A ?utA due

to sa6es @ere dropsA it @as se66s at t+e prices o 5 cents eac+. T+ere oreA t+is ?rou7+t a ?oost

o t+e sa6es to compan! and e1en dou?6ed up t+e Pepsi<Co6a s pro it.

1940



9a6ter ,ac0 @as c+osen or t+e position o ne@ President in Pepsi Co6a Compan! and +e

@as disco1ered t+at t+e ad1ertisin7 some@a! missed t+e ' rican 'mericansA @+o cou6d 7i1e

to a maHor portion in t+e popu6arit! o t+e ?rand. $e appointed $enna+ Smit+A a pu?6icit!

persona to emp+asis a sa6es team to tar7et t+e ?6ac0s. T+e @or0 +ad to ?e stopped in t+e

midd6e due to 9or6d 9ar II. In "34-A ,ac0 came ?ac0 @it+ t+e same 7oa6 and +ired #d@ard

8. o!d or t+e same purpose. T+is @or0ed as a positi1e e ort in ma0in7 Pepsi s oot+o6d

stron7 in t+ese une=p6ored re7ions.

197&

Pepsi Co6a Compan! @as open competition @it+ t+e Coca<Co6a Compan!. Peop6es @ere

se6ected Pepsi ?ecause o te6ecasted t+rou7+ t+e media. T+is urt+er encoura7ed t+e 7ro@t+

and increased t+e sa6e o Pepsi to unima7ina?6e +ei7+ts. In & -A Pepsi Co6a Compan! 0ept

on redesi7nin7 t+e Pepsi cansA urt+ermoreA it a6so sponsored man! @or6d@ide cric0et

tournamentsA @+ic+ certain6! 7a1e anot+er sta7e or t+e compan! to reac+ internationa66!.

e!si’s Mission

Pepsi s mission is to ?e t+e @or6d s primar! consumer products compan! ocused on

con1enient oods and ?e1era7es. Pepsi see0 to produce inancia6 re@ards to stoc0+o6ders as

t+e! pro1ide opportunities or 7ro@t+ and enric+ment to t+eir @or0ersA t+eir ?usiness partners

and t+e societies in @+ic+ t+e! operate. 'nd in e1er!t+in7 t+e! didA t+e! stri1e or

upri7+tnessA eBua6it! and re6ia?i6it!.

e!si’s Vision

JPepsiCo s responsi?i6it! is to continua66! de1e6op a66 aspects o t+e @or6d in @+ic+ @e

operate < en1ironmentA socia6A economic < creatin7 a ?etter tomorro@ t+an toda!.J

T+eir 1ision is put into action t+rou7+ a7endas and a ocus on en1ironmenta6 ste@ards+ipA

acti1ities to ?ene it societ!A and a commitment to ?ui6d s+are+o6der 1a6ue ?! ma0in7 PepsiCo

a tru6! sustaina?6e compan!.



'li(o!oly

)efinition

2estricted ?! a sma66 7roup o irms.

' 7enera6 economic s!stem in no@.

T+e midd6e position amon7 monopo6! and capita6ism

't 6east t@o irms (t@o or more) t+at contro6 t+e mar0et or a certain product or ser1ice.

Gi1es t+ese ?usinesses 7iant contro6 o1er price and ot+er aspect o t+e mar0et.

' mar0et pro1ision in @+ic+ se66er are so 6itt6e t+at t+e actions o an! one o t+em @i66

7reat6! a ect price and +a1e a considera?6e carr! on competitors.

O6i7opo6ies can e ect rom di erent orms o a7reement @+ic+ decrease competitionand direct to +i7+er costs or consumers.

O6i7opo6ies can see ierce competition ?ecause competitors can ta0e in 6ar7e 7ains and

6osses at eac+ ot+er s 6oss. In suc+ o6i7opo6iesA outcomes or consumers can o ten ?e

positi1e.

#ac+ o6i7opo6istic is e=pected to ?e attenti1e o t+e actions o t+e ot+ers.

Strate7ic p6an ?! o6i7opo6ies @ants to ta0e into account t+e 6i0e6! responses o t+e ot+er

mar0et participants. Example: If there are only two companies or suppliers for a complete great city and

people have to decide from among those two, this is an example of an oligopoly.

C*aracteristic

1. T*e s+all n$+ber of lar(e fir+.

T+ere are Hust a e@ o se66ers or supp6ies @+o contro6 a66 or most o t+e sa6es in t+e

industr!.

T+ere are a sma66 num?er o irms t+at t+e actions o one irm can a ected t+e

actions o t+e ot+er irms.

2. ,#entical or )ifferentiate ro#$cts

Product cou6d ?e +omo7eneous (stee6) or di erentiated (automo?i6es)

Some o6i7opo6istic industries produce matc+in7 productsA 6i0e per ect competition in

t+is @atc+.



Eg. Pepsi and Coca-Cola selling almost identical product but they also produce the

certain product which is slightly different with each other li e Pepsi !wist and

"anilla Co e.

3. arriers to entry$i7+ ?arriers o entr! a1oid sma66 irms rom enterin7 mar0et to contro6 surp6us

pro its.

O6i7opo6! irms are 6ar7e and pro it rom economies o sca6e. It ta0es si7ni icant

0no@<+o@ and capita6 to compete in t+is ?usiness.

O6i7opo6ies can 0eep 6on7 run a?norma6 pro its.

T+e ?arriers are:

(") #=c6usi1e resource o@ners+ip

(&) Patents and cop!ri7+ts

( ) Ot+er 7o1ernment restrictions

(4) $i7+ start<up cost.

Eg. In the oligopoly mar et of carbonated drin s, it has been dominated by the

existing large company li e Pepsi and Coca-Cola. !he new company, they have no

chance at all to establish their firms even they could afford to do so. Plus they

couldn#t sell at the price of what the oligopolies been selling so far because the

operation cost is very high and they couldn#t cover their cost if they do so.

4. ,ncenti%e to coll$#e

T+ese di icu6ties @i66 dama7e e ecti1e consent. Sometimes o6i7opo6istic irms @i66

c+eat ?! pass Bua6it! impro1ementA easier credit terms and ree de6i1er!. I Bua6it!

c+an7es can ?e used to competeA co66usi1e price a7reements @i66 not ?e use u6.

Eg. In order to cut cost and ma e the approval faster, companies are trying to cheat to

pass through all of that but it#s illegal to do so.

5. ,nter#e!en#ent

T+e persona6it! part o an o6i7opo6! is interdependence.



O6i7opo6! irms are 6ar7e re6ati1e to t+e mar0et in @+ic+ t+e! mana7e. I one

o6i7opo6! irm c+an7es its price or mar0et p6anA it @i66 considera?6! impact t+e

opponent irms.

#ac+ irm is so +u7e t+at its actions a ect mar0et conditions.Durin7 a monopo6istica66! competiti1e mar0etA eac+ irm s e ect on mar0et

conditions is so si7ni icant as to ?e sa e6! i7nored ?! competitors. E.g. if Pepsi lowers its price to $% cents per tin Co e will be affected. If Co e does

not act in response, it will lose ma&or mar et share. !hus, Co e will most expect

lower the price.

6. on- rice Co+!etition

O6i7opo6ies are possi?6e to i7+t on terms ot+er t+an price. Lo!a6t! sc+emeA

ad1ertisement and product separation are a66 e=amp6es o non<price competition.

Eg. 'ince they are selling about the same price they could not compete with each

other about the price. (hat ma e them different from each other is that they will be

giving li e free gifts, promotion and etc.



/in#e# )e+an# C$r%e of 'li(o!olies

P

X

,aHor assumption or t+is is t+at ,ar7ina6 Cost (,C) is eBua6s to ero and constant.

MR ( X )= a − 2 bx P = a − 2 bx MC ( x )= 0 P = 0 into 0 = a − 2 bx

2 bx= a x =a

2 b

T+e x =a

2 b is @+ere a monopo6ist produced.

P ( x)= a− bx MC ( x)= 0 P= 0 0 = a − bx bx = a x= ab

T+e x= ab is @+ere t+e per ect competition produced.

In t+e strate7ic p6annin7A t+e! ?ot+ @on t i7nore eac+ ot+er. I ?ot+ o t+e compan!A Pepsi Co

and Coca<Co6a t+e! i7nore eac+ ot+erA t+e @i66 ?e producin7a

2 b eac+ @+ic+ t+e

)*+x a- bx

P(X)=a-bx

MC=0Cournot a/ba/2b



monopo6! output. I t+e output mu6tip6! ?! &A t+en t+e output @i66 ?ecomea

b @+ic+ is t+e

per ect competition eBui6i?rium. I t+is case +appen t+e! ?ot+ @i66 +a1e Hust norma6 pro its

instead o supernorma6 pro its.In order to ind t+e Nas+ #Bui6i?riumA Cournot met+od @as used.

[ab − a2 b ]÷ 2 X 2 = [ ab − x1]÷ 2 X 1 = [a

b− x2]÷ 2 ¿ X 1 into X 2

X 2 =

[a

b− [[a

b− x 2]÷ 2]

]÷ 2 X 2 =

[ a

2 b− [[a

b− x 2]÷ 4 ]

] X

2= [ a

2 b−

a

4 b+

x2

4 ]3 X 2

4= a

4 b X 2 = a

3 b∗same goes ¿ X 1

X 2

= [ ab − x1]÷ 2 X

1= [a

b− x

2]÷ 2

T+e Nas+ s eBui6i?rium is t+at ?ot+ o t+e compan!A Pepsi Co and Coca<Co6aA t+e! produce

a3 b o t+e mar0et demand eac+.

X2

N

a/2b

a/0b

a/3ba;&? X1



In t+e o6i7opo6! pricin7 ?e+a1iourA t+ere are assumptions @+ic+ are:

• I Pepsi 6o@ers it priceA Coca<Co6a @i66 a6so 6o@er its price. Coca<Co6a @ou6d not

@ant to 6ose mar0et s+are in case Pepsi decrease its price. So t+atA t+e price decreases

@i66 ?e matc+ed. Demand or Pepsi @i66 ?e +i7+6! ine6astic ?e6o@ 2, .• I Pepsi increase its priceA Coca<Co6a @i66 remain its price. I Pepsi s price increasesA

@e can assume t+at Coca<Co6a @i66 capture muc+ o t+e mar0et s+are since Coca<

Co6a s price remains 6o@. Demand or Pepsi @i66 ?e +i7+6! e6astic at price a?o1e

2, .

9e @i66 ?e assume t+at Coca<Co6a +a1e 1er! 6itt6e incenti1e to 6o@er its price. Pepsi +a1e to

decide @+et+er ?! 6o@erin7 its price @i66 impro1e its tota6 re1enue. 9+en Pepsi reduce its

price to 2,& t+ere @i66 ?e increase in t+e Buantit! demanded 7ro@ ?! " units @+ic+ is

Hust & K o66o@in7 a decrease o K in t+eir price. T+is means t+at t+e Pepsi s tota6 re1enue

@i66 ?e sma66er. It @ou6d not ?e t+e ?est interest or Pepsi to reduce its price to 2,& since t+e

tota6 re1enue is sma66er and cause t+e tota6 cost to increase. T+us t+eir pro its @i66 ?e 6ess at

2,&.9+en Pepsi increase its price rom 2, to 2,4 @i66 cause its tota6 re1enue to a66

a?out - K compared to t+e tota6 re1enue @+en its price at 2, . So in o6i7opo6ies +a1e no

incenti1e to increase or decrease t+e prices @+ic+ @e @i66 ?e ended up @it+ t+e /in0ed

Demand Cur1eA @+ic+ is +i7+6! e6astic a?o1e t+e eBui6i?rium price and +i7+6! ine6astic ?e6o@

t+e eBui6i?rium price. (Note: T+e eBui6i?rium price @+ic+ is 2, )

Pepsi s DemandPrice (RM)

Elastic4

0

Inelastic2

61 $ Quantity (thousan )



Pepsi s Demand

In t+e 0in0ed demand cur1e t+ere is t+e 1ertica6 ran7e o mar7ina6 re1enue. #1en i t+e

o6i7opo6ies ,ar7ina6 Cost @ou6d to increase si7ni icant6! in t+e s+ort run o6i7opo6ies pro it

ma=imi in7 6e1e6 o output @ou6d not c+an7e. T+e pro it ma=imi in7 ru6e stated t+at t+e irm

s+ou6d produce @+ere t+e ,ar7ina6 Cost is eBua6s to t+e ,ar7ina6 2e1enue. 's @e can seeA

t+ere is an increase in t+e ,C " to ,C &t+e ,C ,2 Buantit! price do not 1er! rom 5 at

t+e price o 2, . T+is +as introduce t+e /inded demand cur1e o o6i7opo6! mode6. /inded

demand is ?ased on t+e assumption @+ere t+e price decrease @i66 ?e matc+ed since t+e

competitorA Coca<Co6a @ou6d not @ant to 6ose its mar0et s+are t+ere ore demand @i66 ?e

+i7+6! ine6astic ?e6o@ t+e eBui6i?rium price. Price increase +o@e1er @i66 ?e i7nored since t+e

competitorA Coca<Co6a in t+e ace o t+e risin7 price rom its competitorA Pepsi stands to 7ain

a si7ni icant amount o mar0et s+are ?! 0eepin7 its price sta?6e at t+e eBui6i?rium. 9e @i66 ?e

ended up in a sta?6e eBui6i?rium in O6i7opo6istic mar0et. T+e irms tend not to raise or 6o@er

its price due to t+e assumptions. T+is can ?e seen in t+e /inded demand cur1e o t+e

mar7ina6 re1enue cur1e @+ic+ +a1e t+e 1ertica6 ran7e o mar7ina6 re1enue imp6!in7 t+at e1en

i t+e irms cost rise and a66 in t+e s+ort runA t+e o6i7opo6ies irm @i66 ?e +esitate to c+an7e

t+e 6e1e6 o output and t+e price t+e! c+ar7e.

a+e T*eory

's ?ot+ o t+e Coca<Co6a and Pepsi tr!in7 to outdid eac+ ot+er. #ac+ o t+e decision

made ?! eit+er one o t+em @i66 distress ot+ers @+ic+ is in t+e same mar0et. ,ost o t+em

@i66 race amon7 t+emse61es on t+e e6ements ot+er t+an Hust price.

Price (RM)

,C &4

MC10

,2 2

61 $ Quantity (thousan )



#=amp6e @i66 ?e 6i0e:

• 8ree 7i ts• Luc0 dra@• Promotion pac0 • Ne@ product de1e6opment

To determine t+is o6i7opo6istic ?e+a1iour ?et@een Coca<Co6a and PepsiA t+is can ?e

done t+rou7+ Game T+eor!. Game T+eor! is de ined as ana6!ses o6i7opo6istic ?e+a1iour as a

comp6e= series o strate7ic mo1es and reacti1e countermo1es amon7 ri1a6 irms. 9+en t+e

decision o t@o or more irms or e=amp6e Pepsi and Coca<Co6a stron76! a ect eac+ ot+er s

sa6es and pro itA t+e! are in a situation o interdependence. In 7ame t+eor!A irms are assumed

to anticipate t+eir competitor s mo1e. ,oreo1erA t+ere are t+ree concepts in t+e 7ame t+eor!@+ic+ are dominant strate7!A nas+ eBui6i?rium and prisoners di6emma.

Dominant strate7! is de ined as one t+at is optima6 no matter @+at an opposition does.

In 7ame t+eor!A a dominant strate7! is t+e one t+at 7i1es a p6a!er t+e most ?ene it no matter

@+at t+e ot+er p6a!ers do. 8or nas+ eBui6i?riumA it is de ined as @+en a66 p6a!ers are p6a!in7

t+eir ?est strate7! 7i1en @+at t+eir competitors are doin7. T+enA prisoners di6emma pro1ides

t+e scenario t+at t+e p6a!ers in t+e mar0et are pre1ented rom cooperation @it+ eac+ ot+er.#ac+ p6a!ers +as t+e dominant strate7! ?ut t+e dominant strate7! ma0e t+em @orse o t+an

in t+e case in @+ic+ t+e! cou6d cooperate.

Coca<Co6a +as ?een prominent in t+e car?onated ?e1era7es industr!. #1en t+ou7+

t+ere are Buite a num?er o corporation out t+ere ?ut t+e car?onated ?e1era7es @ere

conBuered ?! ?ot+ Coca<Co6a Co. and Pepsi Co. In t+e car?onated drin0 industr!A Coca<Co6a

Co. conBuered near6! 5 K o t+e mar0et s+are @+i6e Pepsi Co. on6! acBuired 4 K o t+e

mar0et s+are.

So in t+e 7ame o 7ame t+eor!A t+e! su? di1ided into:

• P6a!ers M T+e irms.• Strate7ies M T+e c+oice p6a!er made e7. S+ou6d I c+ar7e +i7+ or 6o@A s+ou6d I 1enture

into t+is mar0et• Pa!o M t+e outcome or t+eir decision made.



Price Settin7 Game

ot+ Coca<Co6a and Pepsi t+e! are decidin7 @+et+er t+e! s+ou6d c+ar7e +i7+ or 6o@ price

Pepsi

Coca<Co6a

$i7+ Price Lo@ Price

$i7+ Price * * & "Lo@ Price " & 5 5

Note: t+e estimation o amount o sa6es are accordin7 to per da! ?asis.

8or Coca<Co6a:

• I Pepsi c+ar7ed a 6o@ priceA Coca<Co6a @ou6d earn a pro it o F5 i it a6so c+ar7ed

t+e 6o@ price and F& i it c+ar7ed a +i7+ price.• I Pepsi c+ar7ed a +i7+ priceA Coca<Co6a @ou6d earn a pro it o F" i it c+ar7ed t+e

6o@ price and F* i it c+ar7ed t+e +i7+ price.• T+ere oreA Coca<Co6a s+ou6d imp6ement its dominant strate7! o c+ar7in7 t+e 6o@

price.

8or Pepsi:

• I Coca<Co6a c+ar7ed a 6o@ priceA Pepsi @ou6d earn a pro it o F5 i it a6so c+ar7ed

t+e 6o@ price and F& i it c+ar7ed a +i7+ price.• I Coca<Co6a c+ar7ed a +i7+ priceA Pepsi @ou6d earn a pro it o F" i it c+ar7ed t+e

6o@ price and F* i it c+ar7ed t+e +i7+ price.• SoA Pepsi s+ou6d imp6ement its dominant strate7! o c+ar7in7 t+e 6o@ price.

$o@e1erA ?ot+ irms earn a +i7+er pro it i t+e! cooperated and ?ot+ c+ar7ed t+e +i7+er price.

In t+is caseA ?ot+ irms are in a prisoners di6emma. Prisoners di6emma mentioned t+at i ?ot+

o t+e compan! cooperated @it+ eac+ ot+er to c+ar7e +i7+er priceA t+e! ?ot+ @i66 earn F*

per da! eac+ instead o F5 per da!. ut t+is strate7! is not possi?6e ?ecause ?ot+ irms +a1e

t+e incenti1e to c+eat. 8or e=amp6eA t+e! +a1e t+e tendenc! to secret6! cut prices or to se66

more t+an t+e a66ocated Buota.

To ad1ertise or not to ad1ertise

ot+ o Coca<Co6a and Pepsi t+e! are decidin7 @+et+er to ad1ertise or not to ad1ertise.



Pepsi

Coca<Co6a

'd1ertise No ad1ertise

'd1ertise " - "& 5

No 'd1ertise 3 * 5 Note: t+e estimation o amount o sa6es is accordin7 to per da! ?asis.

8or Coca<Co6a:

• I Pepsi c+oose to ad1ertiseA Coca<Co6a @ou6d earn a pro it o F" i it a6so

ad1ertised and F3 i it doesn t.• SoA Coca<Co6a s+ou6d ad1ertise i Pepsi ad1ertised.• I Pepsi c+oose not to ad1ertiseA Coca<Co6a @ou6d earn a pro it o F"& i it c+oose

to ad1ertise and F i it doesn t.• T+ere oreA Coca<Co6a s+ou6d ad1ertise @+et+er Pepsi ad1ertise or not.• T+usA Coca<Co6a +as dominant strate7!.

8or Pepsi:

• I Coca<Co6a c+oose to ad1ertiseA Pepsi @ou6d earn a pro it o F- i it a6so c+oose to

ad1ertise and F5 i it doesn t.• T+ere oreA Pepsi s+ou6d c+oose to ad1ertise i Coca<Co6a ad1ertised.• I Coca<Co6a c+oose not to ad1ertiseA Pepsi @ou6d earn a pro it o F* i it c+oose to

ad1ertise and F5 i it doesn t.• SoA Pepsi s+ou6d c+oose to ad1ertise @+et+er Coca<Co6a ad1ertise or not.• T+usA Pepsi +as dominant strate7! a6so.

T+e dominant strate7! or Pepsi and Coca<Co6a is to ad1ertise. T+e! do not need to @orr!

a?out t+e action o ot+er p6a!er. In t+is caseA Coca<Co6a @ou6d earn a +i7+ pro it o F"

and Pepsi @ou6d a6so earn a +i7+ pro it o F- . T+is is t+e ?est strate7! or ?ot+ irms. T+usA

Nas+ eBui6i?rium is ac+ie1ed i ?ot+ irms c+oose to ad1ertise.

To introduce a ne@ diet so t drin0 or not to introduce

I Pepsi @ou6d introduce a ne@ diet so t drin0 @+ic+ is one ca6orie and muc+ tastierA @ou6d

co0e do t+e same t+in7 a6so

Pa!o ,atri= or Introducin7 Ne@ Diet Drin0 Game:

Pepsi

Coca<Co6a

Introduce Ne@ Diet Drin0 Not Introduce Ne@ Diet

Drin0



Introduce Ne@ Diet Drin0 &4 &* 45 - Not Introduce Ne@ Diet

Drin0

"" 4" & &

Note:

T+e amounts in t+e pa!o matri= are co66ected t+rou7+ our sur1e! (re ers to Ta?6e '"A

8i7ure D" and D&) @+ic+ indicates t+e num?er o sa6es or Pepsi and Coca<Co6a.In t+is caseA @e assume t+at no current consumer 6ea1e t+e mar0et and no ne@

consumer come into t+e mar0et.

8or Coca<Co6a:

• I Pepsi c+oose to introduce t+e ne@ diet drin0A Coca<Co6a @i66 +a1e a num?er o

sa6es o &4 i it a6so introduces t+e ne@ diet drin0 and "" i it doesn t.• T+ere oreA Coca<Co6a s+ou6d introduce t+e ne@ diet drin0 i Pepsi introduces t+e ne@

diet drin0.• I Pepsi c+oose not to introduce t+e ne@ diet drin0A Coca<Co6a @ou6d earn a num?er

o sa6es o 45 i it introduces t+e ne@ diet drin0 and & i it doesn t.• SoA Coca<Co6a s+ou6d introduce t+e diet drin0 @+et+er Pepsi introduces t+e ne@ diet

drin0 or not.• T+usA Coca<Co6a +as dominant strate7!.

8or Pepsi:• I Coca<Co6a c+oose to introduce t+e ne@ diet drin0A Pepsi @i66 earn a num?er o sa6es

o &* i it a6so introduces t+e ne@ diet drin0 and - i it doesn t.• SoA Pepsi s+ou6d introduce t+e ne@ diet drin0 i Coca<Co6a introduces t+e ne@ diet

drin0.• I Coca<Co6a c+oose not to introduce t+e ne@ diet drin0A Pepsi @ou6d earn a num?er

o sa6es o 4" i it a6so introduces t+e ne@ diet drin0 and & i it doesn t.• T+usA Pepsi s+ou6d introduce t+e ne@ diet drin0 @+et+er Coca<Co6a introduces t+e

ne@ diet drin0 or not.• T+ere oreA Pepsi a6so +as dominant strate7!.

's a resu6tA dominant strate7! or Pepsi and Coca<Co6a is to introduce ne@ diet din0

@+ic+ is one ca6orie and muc+ tastier. T+is is an optima6 strate7! or t+em @it+out

@orr!in7 a?out actions o ot+er p6a!ers. T+e Nas+ eBui6i?rium is ac+ie1ed i ?ot+ irms

introduce ne@ diet drin0 @+ic+ is one ca6orie and muc+ tastier. T+ere oreA @+en Pepsi

introduces ne@ diet drin0 @+ic+ is one ca6orie and muc+ tastierA Coca<Co6a s+ou6d do t+e



same ?! introducin7 a ne@ diet and tastier drin0 so t+at Coca<Co6a a?6e to o set t+e

Pepsi s strate7! and at t+e same time compete @it+ Pepsi so t+at Coca<Co6a cou6d retain

t+eir current customerA attractin7 ne@ customer and as @e66 as retainin7 t+eir mar0et

s+are. I Coca<Co6a did not o66o@ @+at Pepsi did ?! introducin7 t+e ne@ diet drin0A

Coca<Co6a mi7+t 6ose out in t+e competition ?et@een ?ot+ o t+em and Coca<Co6a mi7+t

6ose its current customer and its re1enue.

Concl$sion an# eco++en#ation

In conc6usionA ?ot+ Coca<Co6a and Pepsi a66 into an o6i7opo6istic competition since

?ot+ o t+em se66in7 t+e same or identica6 product. T+e! ?ot+ are interdepended @it+ eac+

ot+er as t+e! @i66 ma0e decision ?ased on @+at t+eir competitor s mo1es or decision. T+e!

?ot+ @i66 tr! to reduce t+eir price as 6o@ as possi?6e to 7ain and to retain t+eir customer. #1en

i t+e production cost increase in t+e s+ort runA o6i7opo6ies t+e! are +esitate to c+an7e t+eir

price o t+eir product ?ecause t+e! are a raid o 6osin7 out t+eir mar0et s+are. ,oreo1erA t+e

compan! +a1e to use t+e 7ame t+eor! met+od to ind out @+at is t+e ?est decision and t+e ?est outcome or t+em @+ic+ can 7i1e t+em t+e ma=imum pro it in t+e s+ort run. ! usin7

7ame t+eor!A @e 0no@ t+at Coca<Co6a and Pepsi +a1e t+e dominant strate7! to introduce t+e

diet so t drin0 @+ic+ is one ca6orie and muc+ tastier.

On top o t+atA it +as ?een t+e concern or t+e peop6e re7ardin7 a?out t+e consumption

o so t drin0s due to +i7+ su7ar! content. T+is is due to t+e increasin7 rate o dia?etic patient

and more and more peop6e are +a1in7 t+e pro?6em o o?esit!. T+is +as 6ead to t+e increase

+ea6t+ concern amon7 t+e societ!A t+e! are muc+ more concern re7ardin7 a?out t+eir +ea6t+.T+ere are sti66 peop6e @+o 6i0e to drin0 so t drin0s 6i0e co0e. ! introducin7 ne@ diet co0e



@+ic+ is one ca6orie and muc+ tastier is t+e so6ution to t+at. So i Pepsi @ere to introduce and

Coca<Co6a did not+in7A Coca<Co6a @ou6d not 7ain an!t+in7 and Pepsi @i66 7ain muc+ more

re1enue due to t+e increasin7 demand or diet so t drin0s. So it s recommended or Coca<

Co6a to o66o@ Pepsi to introduce a ne@ diet co0e in order not to 6ose out in t+eir mar0et

s+are.

!!en#i

Timestamp

Before youbegin, we

need toknow which

your agegroup?

Inbetween

Cokeand

Pepsi,which

one youprefer more?

Due towhich

reason youmade the

choiceabove?

If Coke/Pepsi

wou dreduce

their pricewou d youchange the

brand?

If one of themintroduces a

new diet drinkwith one ca orie

that is tastier than its

traditiona dietco a, wou d you

buy it?6/27/2013

16:13:51 20-35 Coke Taste Yes, I will. Yes, I will.6/27/2013

16:40:28 36-50 Pepsi Taste Yes, I will. Yes, I will.6/27/2013


17:03:46 20-35 Pepsi Taste No I wo !t. No I wo !t6/27/2013

17:21:12 "elow 20 Pepsi Taste No I wo !t. Yes, I will.6/27/2013

17:30:50 50-75 Pepsi#$%iti &'((e)s No I wo !t. No I wo !t

6/27/201317:31:16 50-75 Coke P)i%e No I wo !t. No I wo !t

6/27/201317:36:11 "elow 20 Coke Taste Yes, I will. Yes, I will.

6/27/201318:34:42 "elow 20 Coke

#$%iti &'((e)s Yes, I will. Yes, I will.

6/27/2013 "elow 20 Coke Taste Yes, I will. Yes, I will.



18:55:166/27/2013

1*:13:15 20-35 Pepsi Taste Yes, I will. Yes, I will.6/27/2013

1*:32:36 "elow 20 Pepsi Taste No I wo !t. No I wo !t6/27/2013

1*:40:46 "elow 20 Coke Taste No I wo !t. Yes, I will.6/27/2013

20:35:01 "elow 20 Coke Taste No I wo !t. No I wo !t6/27/2013

20:40:30 "elow 20 Pepsi Taste Yes, I will. Yes, I will.6/27/2013

21:10:3* 20-35 Coke Taste No I wo !t. No I wo !t6/27/2013

21:2*:10 "elow 20 Coke Taste Yes, I will. Yes, I will.6/27/2013

22:22:11 "elow 20 Pepsi Taste Yes, I will. Yes, I will.6/27/2013

22:22:58 20-35 Coke Taste No I wo !t. Yes, I will.6/27/2013

23:21:12 20-35 Pepsi Taste No I wo !t. Yes, I will.6/28/2013

0:30:20 "elow 20 Coke Taste Yes, I will. Yes, I will.6/28/2013

1:06:45 "elow 20 Coke Pa%ka&i & Yes, I will. Yes, I will.6/28/2013

1:12:2* 20-35 Coke Taste No I wo !t. No I wo !t6/28/2013

1:38:53 20-35 Coke Taste No I wo !t. No I wo !t6/28/2013

8:34:10 "elow 20 Pepsi Taste No I wo !t. No I wo !t6/28/2013

*:24:30 "elow 20 Coke P)i%e No I wo !t. Yes, I will.6/28/2013


12:57:45 "elow 20 Pepsi Pa%ka&i & No I wo !t. No I wo !t6/28/2013

12:5*:5* 20-35 Coke Taste No I wo !t. No I wo !t6/28/2013

13:16:1* 20-35 Pepsi Pa%ka&i & No I wo !t. No I wo !t6/28/2013

13:2*:51 20-35 Pepsi P)i%e Yes, I will. Yes, I will.6/28/2013


13:55:48 "elow 20 Pepsi Taste No I wo !t. Yes, I will.6/28/2013

13:56:48 20-35 Pepsi Taste No I wo !t. No I wo !t6/28/2013

14:5*:54 "elow 20 Pepsi Taste No I wo !t. Yes, I will.6/28/2013


18:31:55 "elow 20 Coke Taste Yes, I will. No I wo !t6/28/2013


18:50:4* 20-35 Pepsi Taste No I wo !t. Yes, I will.6/28/2013 20-35 Pepsi Taste Yes, I will. Yes, I will.



1*:05:066/28/2013


21:1*:15 "elow 20 Pepsi Taste No I wo !t. Yes, I will.6/2*/2013

5:41:31 20-35 Coke Pa%ka&i & No I wo !t. No I wo !t6/2*/2013

12:40:03 "elow 20 Coke Taste No I wo !t. No I wo !t6/2*/2013

17:17:47 "elow 20 Coke Pa%ka&i & No I wo !t. Yes, I will.6/2*/2013

1*:23:41 20-35 Coke Taste No I wo !t. Yes, I will.6/2*/2013

1*:51:33 "elow 20 Coke P)i%e Yes, I will. Yes, I will.6/2*/2013


1:11:14 "elow 20 Coke#$%iti &'((e)s Yes, I will. Yes, I will.

6/30/20137:03:55 20-35 Pepsi

#$%iti &'((e)s Yes, I will. Yes, I will.

6/30/201312:25:12 "elow 20 Coke Taste No I wo !t. Yes, I will.7/4/201311:0*:48 20-35 Coke Taste Yes, I will. Yes, I will.

Ta?6e '"

No o! res"on ent

8i7ure '&



)*+

10+

,+

,+

-.i . R a!#(

#as te Pac$a%in% Price E&citin% o'ers

8i7ure '

N0m1 r #' C#/a2C#3a /#(!0m r /.a(& "# % 4!i i' % 4!i 3#5 r ". ir 4ri/

Cola consu(erChan%e to consu(ePe"si i! Pe"si lo)ertheir "rice

8i7ure &



N0m1 r #' % 4!i /#(!0m r /.a(& "# C#/a2C#3a i' C#/a2C#3a 3#5 r ". ir 4ri

Nu(ber o! Pe"si

consu(er chan%e toCoca*cola i! Coca*colalo)er their "riceNu(ber o! Pe"siconsu(er chan%e toCoca*cola i! Coca*colalo)er their "rice

8i7ure

N0m1 r #' C#/a2C#3a /#(!0m r /.a(& "# % 4!i i' % 4!i i("r#60/ ! a ( 5

Nu(ber o! Coca*colaconsu(er chan%e toPe"si i! Pe"siintro uces a ne) iet

rin$ Nu(ber o!Coca*cola consu(erchan%e to Pe"si i!Pe"si intro uces ane) iet rin$

8i7ure D"



N0m1 r #' % 4!i /#(!0m r /.a(& "# C#/a2C#3a i' C#/a2C#3a i("r#60/ ! a (

Nu(ber o! Pe"siconsu(er chan%e toCoca*cola i! Coca*colaintro uces a ne) iet

rin$

8i7ure D&

2e erence:

". T+e Coca<Co6a Compan!. (n.d). $istor! o ott6in7. 2etrie1ed rom +ttp:;;@@@.coca<

co6acompan!.com;our<compan!;+istor!<o <?ott6in7&. $istor! o Coca<Co6a. (n.d). 2etrie1ed rom +ttp:;;@@@.coca<co6a.co.u0;a?out<

us;+istor!<o <coca<co6a<"** <"*3&.+tm6. $istor! o Pepsi. (n.d) 2etrie1ed rom +ttp:;;6i est!6e.i6o1eindia.com;6oun7e;+istor!<

o <pepsi< 43-.+tm64. ' S+ort $istor! o Pepsi (n.d) 2etrie1ed rom

+ttp:;;@@@. [email protected];persons;7roote;cursus;76o?a6

K& 1i66a7e;@e?sites; 5 ;cocaco6asite;+ispepsi.+tm65. $istor! o T+e irt+p6ace (n.d) 2etrie1ed rom +ttp:;;@@@.pepsistore.com;+istor!.asp

. Oi6i7opo6! (& " )+ttp:;;[email protected];@i0i;O6i7opo6!

http://www.coca-colacompany.com/our-company/history-of-bottling


http://www.coca-cola.co.uk/about-us/history-of-coca-cola-1886-1892.html


http://lifestyle.iloveindia.com/lounge/history-of-pepsi-6497.html


http://www.frw.rug.nl/persons/groote/cursus/global%20village/websites/0506/cocacolasite/hispepsi.html


http://www.pepsistore.com/history.asp

http://en.wikipedia.org/wiki/Oligopoly









http://www.pepsistore.com/history.asp

http://en.wikipedia.org/wiki/Oligopoly



-. >o+n ouman. (& ""). C+aracteristics o an O6i7opo6! Industr!. 2etrie1ed rom

+ttp:;;@@@.in 6ate!ourmind.com;inde=.p+p

option com content 1ie@ artic6e id " 4 Itemid " 5*. Imper ect and monopo6istic competition mar0ets and o6i7opo6! mar0ets. (n.d)

2etrie1ed rom +ttp:;;@@@.u0essa!s.com;essa!s;economics;imper ect<and<

monopo6istic<competition<mar0ets<and<o6i7opo6!<mar0ets<economics<

essa!.p+p i= &Y9 Lp1>B3. T+e competition ?et@een Coca Co6a and Pepsi. (n.d) 2etrie1ed rom

+ttp:;;@@@.u0essa!s.com;essa!s;mar0etin7;t+e<competition<?et@een<coca<co6a<and<

pepsi<mar0etin7<essa!.p+p10+ /in0ed Demand. (& " ) 2etrie1ed rom +ttp:;;[email protected];@i0i;/in0ed demand

http://www.inflateyourmind.com/index.php?option=com_content&view=article&id=134&Itemid=165


http://www.ukessays.com/essays/economics/imperfect-and-monopolistic-competition-markets-and-oligopoly-markets-economics-essay.php#ixzz2YW0LpvJq



http://www.ukessays.com/essays/marketing/the-competition-between-coca-cola-and-pepsi-marketing-essay.php


http://en.wikipedia.org/wiki/Kinked_demand








http://en.wikipedia.org/wiki/Kinked_demand

Assignment Econs (Oligopoly)

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Transcript of Assignment Econs (Oligopoly)