How new soft drink is the most profitable strategy


Coca-Cola and Pepsi Co are the leading competitors in the market for cola products. In 1960 Coca Cola introduced Sprite, which today is the worldwide leader in the lemon-lime soft drink market and ranks 4th among all soft drinks worldwide. Prior to 1999, PepsiCo did not have a product that competed directly against Sprite and had to decide whether to introduce such a soft drink. By not introducing a lemon lime soft drink, PepsiCo would continue to earn a $200 million profit, and Coca-Cola would continue to ear a $300 million profit. Suppose that by introducing a new lemon lime soft drink, one of the two possible strategies could be pursued: 1) PepsiCo could trigger a price war with Coca-Cola in both the lemon-lime and cola markets, or 2) Coca-Cola could acquiesce and each firm maintain its current 50/50 split of the cola market and split the lemon lime market 30/70 (PepsiCo / Coca Cola). If PepsiCo introduced a lemon-lime soft drink and a price ware resulted, both companies would earn profits of $100 million. Alternatively, Coca Cola and Pepsi Co would earn $275million and $227 million, respectively, if PepsiCo introduced a lemon lime soft drink and Coca Cola acquiesced and split the markets as listed above. If you were a manager at Pepsi Co, would you try to convince your colleagues that introducing the new soft drink is the most profitable strategy? Why or Why not?

Request for Solution File

Ask an Expert for Answer!!
Microeconomics: How new soft drink is the most profitable strategy
Reference No:- TGS074266

Expected delivery within 24 Hours