Markets Model Patterns of Change

Markets Model Patterns of Change

Introduction

The study is related to the markets patterns of change in relation to the soft drink industry. The Soft Drink industry is essentially a duopoly with two firms, Coca-Cola Co. and PepsiCo Inc., controlling about 75 percent of the market. In spite of such high concentration, the two firms compete vigorously in a variety of ways. The market of soft drinks consists of retail sale of coffee, functional drinks, bottled water, concentrates, RTD tea, juices, carbonates, and smoothies. Nevertheless, total volume of market for soft drink market prohibits the contemplate category.

Short-run and Long-run Behaviors

If short run is considered then the soft drinks market in US produced total revenues amounting $ 124.7 billion in 2010 which includes a compound annual growth rate of 0.7 percent for the period that is 2006 to 2010. The Carbonates sales confirmed the most profitable for the United States market of soft drink in the year 2010 which generated the revenues amounting $ 61.4 billion which is equal to 49.2 percent of the overall value of the market. Coke and Pepsi engage in substantial non-price rivalry, including advertising and competing for product placement and celebrity endorsements. Especially intense rivalry occurs as the two firms try to become the exclusive seller in restaurants, universities, and other such venues. They also compete through introducing new varieties of soft drinks and through promotions to retailers or directly to consumers. For example, between 1997 and 2004, Coke and Pepsi introduced 22 new brands (Begg and Ward, 2009).

Concerning price competition, one study concludes that a merger of the two firms would raise prices by between 16 and 17 percent, suggesting the advantage of duopoly. The price performance of the carbonated beverage market over time has been good. The Consumer Price Index (base of 100 in 1967) for the category of non-alcoholic beverages, which includes carbonated beverages as an important component, was 169 in 2009 (Earl and Wakeley, 2005). That is far below the 214 for all consumer items or the 215 for all food and beverages. This means that the real price of such beverages declined by about 21 percent over the 1967-2010 periods. Furthermore, PepsiCo in 2011 decided not to raise prices in spite of rising input prices, choosing to cut earnings estimates, presumably because of stiff competition (Charles, 2005).

However, if long run of Carbonated Beverage Industry is considered then the market's performance is forecasted to slow down with a predictable compound annual growth rate of 0.4 percent for the five year period 2010 to 2015 which is predictable to show the way to the market to value of $ 127 billion in 2015.

Transaction Costs

Budget Concerns and Organizational Strategies Beverage and food companies that include the soft drinrks is under pressure from the confronts that range from the increasing commodity and also the energy costs to compete from the products that are private label. For that reason, it is important for them to get various steps that include maintaince of culture of ...