Differentiating Between Market Structures – Coca Cola

The soft drink industry has diverse players, including coca cola. Coca Cola is one of the leading soft drink producers globally. Over the years, Coca Cola has registered continued growth. Presently, it produces over 500 different products, which are distributed globally. It principal business rival is Pepsi (Besanko, Braeutigam & Gibbs, 2011). The industry has very few players dominating it. Most of the players trade in products that are rather homogeneous. In the market, Coca Cola seeks to grow into the leading branded beverages’ provider globally. The market is considerable oligopolistic in structure. Between themselves, Pepsi and Coca Cola control over nine tenths of the market. The other large player, especially in the US, is Cadbury-Schwepps (Doole & Lowe, 2008; Jennings, Sliger & Murphy, 2001).

Market Structure

Coca Cola operates in a market with an oligopolistic structure. The market is deemed oligopolistic since it comprises of a few companies competing against each other in an environment that is markedly competitive. The companies have marked influence over each other’s product pricing regimes (Doole & Lowe, 2008; Jennings, Sliger & Murphy, 2001). The market is defined by high entry barriers, or impediments. As well, it is defined by demand curves that are rather kinked as well as the proliferation of cartels. Characteristically, capital-intense firms are predisposed towards competing in oligopolistic markets (Layton, Robinson & Tucker, 2011).

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Given that the market comprises of multiple players, product differentiation remains quite challenging. Coca Cola operates in a market that, unlike the markets with perfect competition structures, has its dynamics specially those relating to pricing, determined or shaped by only a few businesses (Besanko, Braeutigam & Gibbs, 2011). Oligopolistic types of markets exist for real unlike those with perfect competition structures. The latter largely exist in theory.

The resolution that the market within which Coca Cola operates has an oligopolistic structure is based on several factors. First, there are few companies competing in the market. The companies include Cadbury-Schwepps, Pepsi, and Coca Cola. The few companies in the market provide most of its required supplies (Layton, Robinson & Tucker, 2011). The decisions made by each of the companies markedly affect the decisions of its rivals. The productivity of each of the companies markedly affects the productivity of its rivals. As is typical of oligopolistic markets, the few largest companies in the soft drink industry dominate the soft drink market and industry in general according to Morschett, Schramm-Klein and Zentes (2010).

Second, as is typical of oligopolistic markets, Pepsi and Coca Cola, which dominate the market, are highly interdependent in some aspects according to Morschett, Schramm-Klein and Zentes (2010).  Particularly, the behaviors expressed by Pepsi are impacted upon by what its management perceive to be the actions and thinking of Coca Cola’s management. On the other hand, the behaviors expressed by Coca Cola are impacted upon by what its management perceive to be the actions and thinking of Pepsi’s management (Doole & Lowe, 2008; Jennings, Sliger & Murphy, 2001).

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Third, as is typical of oligopolistic markets, Pepsi and Coca Cola compete in a market that is defined by considerable price stability and highly standardized goods (Trigg, Himmelweit & Simonetti, 2002). Fourth, the resolution that the market within which Coca Cola operates has an oligopolistic structure is based on the actuality that the market is characterized by non-pricing competitive approaches. As well, the market is characterized by limited sharing of information by the competing businesses (Layton, Robinson & Tucker, 2011).

Apart from the characteristic features of markets with oligopolistic structures explained above as regards the market in which Pepsi and Coca Cola operate, there are other typical attributes of such markets. Each of the dominant firms in oligopolistic markets has considerable market shares. Accordingly, the pricing regimes adopted by each of them have considerable effects on its rivals’ pricing regimes, hence profitability. Pepsi, like Coca Cola, has a considerable market share. Accordingly, Pepsi’s pricing regimes have considerable effects on Coca Cola’s pricing regimes, hence profitability (Besanko, Braeutigam & Gibbs, 2011).

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On the other hand, Coca Cola’s Pepsi’s pricing regimes have considerable effects on Pepsi’s pricing regimes, hence profitability. When either Pepsi or Coca Cola is formulating an output or price-related decision, it reflects on the likely response of the other (Layton, Robinson & Tucker, 2011). That means that the two, like all firms operating in oligopolistic markets, are highly interdependent as regards such decisions. Owing to such interdependence, Coca Cola engages in market behaviors that are deemed strategic. A firm is said to express strategic conduct, or behavior, if its favorable outcomes are determined by its competitors’ actions (Doole & Lowe, 2008; Jennings, Sliger & Murphy, 2001).

The firms with operations in markets that are deemed as having oligopolistic structures engage in group behaviors that are strategic. The group behaviors are persuaded by the firms’ interdependence of price, as well as output, decisions. As noted earlier, any of the firm’s price, as well as output, decisions directly impact on the competition. Rather than developing independent strategies regarding pricing, as well as output, the firms commonly opt for consensuses among themselves, to ensure that the interests of them are appropriately safeguarded (Besanko, Braeutigam & Gibbs, 2011). In most markets with oligopolistic structures, rival businesses tend to conduct themselves as if they are just one business even as they remain keen on retaining their operational autonomy according to Morschett, Schramm-Klein and Zentes (2010).

Competitive Strategies

            As indicated earlier, Coca Cola operates in a market that is characterized by non-pricing competitive approaches (Layton, Robinson & Tucker, 2011). In such a market, the decisions made by one dominant business impact on its rivals significantly. As noted earlier, when either Pepsi or Coca Cola is formulating an output or price-related decision, it reflects on the likely response of the other. That means that the two, like all firms operating in oligopolistic markets, are highly interdependent as regards such decisions (Doole & Lowe, 2008; Jennings, Sliger & Murphy, 2001). That means that the two, like all other firms in markets defined by oligopolistic structures, are not favorably served by price-based competitive strategies. Coca Cola is best served by the adoption of competitive strategies that are not based on pricing.

Particularly, Coca Cola would be highly competitive and maximize its profitability by offering its clients ample credit facilities as its competitive approach. The facilities will help its clients purchase Coca Cola products and pay for them after making the attendant sales. The other strategy that can serve Coca Cola rather well is extending the opening hours of the warehouses holding its products. That will enable its clients replenish their Coca Cola stocks anytime of the day (Besanko, Braeutigam & Gibbs, 2011). Effectively, the extended opening hours will see the company make more sales than it is doing presently. The other strategy that can serve Coca Cola rather well is expanding its products’ branding scheme to increase their differentiation in the light of its rivals’ products.

These three competitive strategies will be effective in growing Coca Cola’s profitability. There are likely to be effective since they hold the potential for maximizing client response and enhancing market performance (Doole & Lowe, 2008; Jennings, Sliger & Murphy, 2001). As well, there is a marked likelihood that the three competitive strategies will be effective since Coca Cola is already highly competitive in the soft drink industry according to Morschett, Schramm-Klein and Zentes (2010).  In addition, there is a marked likelihood that the three competitive strategies will be effective since the pricing differences between the products manufactured by here is a marked likelihood that the three competitive strategies will be effective since Coca Cola and those of its rivals are insignificant (Besanko, Braeutigam & Gibbs, 2011). Coca Cola can only distinguish itself with respect to aspects like customer satisfaction, delivery time, and quality.

Recommendations 

  1. Coca Cola should offer its clients, especially the wholesalers of its products, ample credit facilities to help them purchase its products and pay for them after making the attendant sales (Besanko, Braeutigam & Gibbs, 2011).
  2.  Coca Cola should extend the opening hours of the warehouses holding its products to make more sales than it is doing presently.
  3. Coca Cola should expand its product branding scheme to increase its products’ differentiation in the light of its rivals’ products.
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