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Coca-Cola And Pepsi's Model Of Perfect Competition

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The model of perfect competition is founded on 4 conditions: 1. A large number of buyers and sellers. In fact, in a perfect competition industry, a large number of firms produce almost the same types of goods consumed by a large number of consumers. The firms in this case along with the consumers are price takers, that is, they take the price as it is without being able to increase it or reduce it. In this model, a price is like the weather, you may complain about it but you can’t amend it no matter how much you try. 2. Identical goods. Firms in the model of perfect competition produce the same exact goods. There are no brand loyalty or consumer preferences. As a matter of fact, the good produced by firm A can’t be distinguished from the good …show more content…

In fact, Coca-Cola and Pepsi have their own markets to themselves. They belong to an oligopoly which is when two or more firms occupy the market. There are of course other soft drinks available in the market like Crush, Miranda, Seven Up,… but they are either produced by Coca-Cola or by Pepsi or by a firm working for one of these companies. Add to that, that Coca-Cola and Pepsi are somehow similar but they aren’t identical in the taste. Consumers usually choose one of these two soft drinks because of brand loyalty or because of personal …show more content…

4. Government bonds and corporate stocks Government bonds and corporate stocks don’t belong to a perfect competition industry. Let’s start with government bonds. They are issues by governments, that is, one government per country issues bonds, and therefore there is only one seller per country and many buyers. In fact, Investopidia (2016) defines government bonds as: A government bond is a debt security issued by a government to support government spending. Federal government bonds in the United States include savings bonds, Treasury bonds and Treasury inflation-protected securities (TIPS). Before investing in government bonds, investors need to assess several risks associated with the country, such as country risk, political, inflation risk and interest rate risk, although the government usually has low credit risk. In addition, there are different types of bonds, therefore the second condition of identical good isn’t met either. Since two conditions aren’t met out of four, government bonds don’t belong to a perfect competition

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1.2. Product Differentiation This refers to differentiation that aspires to make a product more attractive by contrasting its unique qualities with other competing products (Investopedia, 2015:1), as in the case of Coca-Cola, other soft drink brands. Successfully adopting this strategy would have a company gaining a competitive advantage, as the customer would then view the product as unique or superior. This is what coca cola has managed to do, and has managed to do it on a scale that is globally unique, and globally recognized.

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