ECONOMIC ANALYSIS

Economic Analysis of Pepsi Co vs Coca-Cola

Economic Analysis of Pepsi Co vs Coca-Cola

Introduction

The soft drinks market is dominated by two giants: Coca-Cola and Pepsi Co., the first was created by Dr. Pemberton in 1886, its direct competitor was invented in 1893 by dr. Bradham. Coca-Cola has always been a leader in the market with a share of around 80%, about six times that of Pepsi. They might decide together to abolish the promotion and raise prices in order to obtain higher profits (Proctor 2009). The Game Theory and Oligopoly is becoming increasingly important in explaining the competitive pressures in an industry. Until recently, the relationships that develop between firms were studied in the light of an atomistic conception, is recently preferring the use of additional criteria to it and you are paying greater attention to analyzing strategic interaction between actors cheap(Proctor 2009). However it should be noted that the models considered in this work are greatly simplified compared to the complexity of the real economy.

Price Elasticity of Demand

Elasticity is defined as responsiveness of a consumer towards a particular product when its price changes. In layman terms it means that if N is the number of consumers that were initially purchasing a product when its price was P, what will be the change in demand when the price of the same product increases/decreases (Proctor 2009).

The change in price of a product may result in either more consumers buying that product or consumers not buying that product. The production cost of Pepsi Company is less than Coke because Pepsi Company is using the Franchisees for the production purpose and giving the remuneration for the production and maintaining the quality of the products by the regular checkups. In case of Coke it has its own production units and producing the products in their own plants, this increases the production cost of the drinks of Coke, because of this reason the profits of Coke reduced when compared to Pepsi. PepsiCo is a world leader in convenient foods and beverages, with the revenue of $307.2 millions by 2004 and $367.1 millions by 2009 with 163,000 employees.

The P / B of the two companies is more than 4 times, so it is not cheap compared to book value. With respect to ROE must say they are 2 large companies because they have stable and high ROEs every year, but here is a little higher than Pepsi, which has a higher average ROE and is at the expense of a better "Total asset turnover "(I'll explain more carefully depues) but is not much difference between them, especially on the margins of Coke. Finally we have the net margins this year and the average últims 10 years(Proctor 2009). Coke clearly wins here with almost double the margin. This is a good indication to see that the company has a competitive advantage (Jondeau 2007). The second table compares cash flows of businesses. For me one of the most important things:

The CFO sales ratio shows the ability of the company on getting sales and ...