Unlike the previous years where high margins characterized the CSD’s industry, profitability of the two giants has been threatened by the increasing share of non-carbonated soft drinks which seem to reduce there margins (http://www. pepsico. com/). The market structure of PepsiCo can be described as duopolistic. A duopoly is where there are only few companies in the market selling similar products. The consumers can substitute a company product with another company product. Like PepsiCo and Coke, duopolies best outcome is to join there strength’s and prevent output to the monopoly quantity.
The battleground for the soft-drink is now on the overseas markets. The United States, Japan, Australia and Western Europe have been the “hot spots” but growth has decreased slowly over the years although they are still potential markets for Coca-Cola and Pepsi (http://www. pepsico. com/). The main battle ground now is Eastern Europe, Mexico, Saudi Arabia, China and India. The two giants are forming joint battling ventures in these countries and other areas where they see potential growth. The domestic cold war between the two giants is not yet over.
The two soft-drink giants have realized the need to increase there opportunities in other mature markets. A duopoly that needs to maximize profits will have to surpass the produce by the monopolist but produce less than a competitive industry (Calderini, Garrone, 2003, p. 30). Duopolies are created through collusion where firms corporate to share output and decide the price just like in cartels. Unlike perfect competition and pure monopoly the oligopolies have to decide whether to cooperate to achieve greater profits through monopoly outcome or compete in order to gain competitive advantage over the other competitors.
The oligopoly market is usually characterized by few firms who are able to exceed the normal profits. The companies are capable of reducing there prices thereby causing price wars in some markets. The companies are capable of introducing new products in the market through conducting research and development from the supernormal profits gained. The companies influence to the market is determined by the market share each respective company has in the market (Calderini, Garrone, 2003, p. 41).
The impact of new companies entering the market is quite insignificant since the two giants have massive ownership of the market share. The two giants are able to influence the market through there market share. Depending on the entering strategy the new companies have to face the two soft-drink giants who have enormous financial strength of enticing there customers. Through the supernormal profits gained they can control the markets through actions like price reduction. Competition in the markets is also increased forcing the companies to venture into areas like quality improvement in a bid to attract the consumer.
The variety of products produced is increased with each company trying to produce the product that it deems will attract the consumer more (Jeffris, 1993, p. 57).
Calderini Mario & Garrone Paola (2003) Corporate Governance, Market Structure and Innovation. New York: Edward Elger Publishers, pp. 30, 41 Jeffries Ian, 1993, Socialist Economics and the transition to the Market, London Routledge, pp. 57 PepsCo Corporate Site, Retrieved on 15th January 2009 from, http://www. pepsico. com/ .