An Economic Analysis of Brand-Level Strategic Pricing Between Coca-Cola Company and Pepsi

Tirtha Dhar (), Jean-Paul Chavas (), Ronald Cotterill () and Brian W. Gould

No 201538, Working Papers from University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group

Abstract: We investigate market structure and strategic pricing for leading brands sold by Coca-Cola Company and PepsiCo. in the context of a flexible demand specification (i.e., nonlinear AIDS) and structural price equations. Our flexible and generalized approach does not rely upon the often used ad hoc linear approximations to demand and profit-maximizing first-order conditions, andthe assumption of Nash-Bertrand competition. We estimate a conjectural variation model and test for different brand-level pure strategy games. This approach of modeling market competition using the nonlinear Full Information Maximum Likelihood (FIML) estimation method provides insights into the nature of imperfect competition and the extent of market power. We find no support for a Nash-Bertrand or Stackelberg Leadership equilibrium in the brand-level pricing game. Results also provide insights into the unique positioning of PepsiCo.’s Mountain Dew brand.

Keywords: Food Consumption/Nutrition/Food Safety; Research and Development/Tech Change/Emerging Technologies; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 28
Date: 2005
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwfswp:201538

DOI: 10.22004/ag.econ.201538

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