Glamor Economics

Chapter 70

Chapter 10 Section 4 Coca-Cola and Pepsi Cola - Monopolistic Competition

In the 20s, the competition between Coca-Cola and Pepsi was fierce.In order to win the competition, Coca-Cola conducted a survey on 80 consumers aged 20 to 13. The results showed that 59% of the respondents thought that Coca-Cola was not sweet enough.Originally, it was not sweet enough to add some sugar, but Coca-Cola spent two years and spent 55 million US dollars to develop a new, more scientific and reasonable formula. On May 4000, 1985, Chairman Gosuta announced that Coca-Cola would terminate the 5-year-old formula and replace it with New Coca-Cola; there were about 1 newspapers, magazines and TV stations at the press conference Reporters, everyone is not optimistic about the new Coca-Cola.

After 24 hours, the consumer's reaction really confirmed the speculation of the reporters.Many calls were made to Coca-Cola, and many letters were sent to Coca-Cola. People expressed their anger at this change, thinking that it greatly hurt consumers' loyalty and feelings for Coca-Cola.San Francisco also set up a "National Coca-Cola Drinkers Association" and held activities to protest the new Coca-Cola. Some people resold the old Coca-Cola for profit, and some people threatened to switch to drinking tea.

At this point Pepsi added fuel to the fire.PepsiCo president Steven published a letter to Coca-Cola in the newspaper, claiming that Coca-Cola was withdrawing the product from the market and changing the formula to make it more like PepsiCo's product.It was a victory for Pepsi, and the company took a day off to celebrate it.

Faced with this situation, on July 1985, 7, Gosuta had to announce: to restore the true colors of Coca-Cola, change its name to "Classic Coca-Cola", and specially indicate "Original Formula" on the trademark.Meanwhile, new Coke recipes continued to be produced.As soon as the news spread, Coca-Cola's stock soared.

This case shows that the old Coca-Cola has formed a monopoly position among some consumers, and even the president of Coca-Cola cannot shake this position.At the same time, the case also shows that there is still competition among beverages such as Coca-Cola, Pepsi, mineral water and tea.This market is a monopolistic competition market.

Compared with the perfect competition market, the monopolistic competition market has higher price and average cost, and lower output, indicating that the degree of resource utilization is low.But its products are different and can meet the needs of different consumers.In a monopolistic competition market, the scale of firms is larger, which is conducive to innovation.

The conditions of a monopolistic competition market are as follows:

First, there are a large number of firms in the production group that produce differentiated products of the same kind that are close substitutes for each other.For example, beef noodles and shredded chicken noodles.Product differences here not only refer to differences in quality, structure, appearance, and sales services of the same product, but also include differences in trademarks, advertisements, and fictitious differences based on consumers' imaginations.For example, although two restaurants sell the same dish (take steamed fish as an example) there is no difference in essence, but consumers think that the steamed fish in one restaurant is more delicious than the other, and there is a fictional difference at this time.

Second, the number of enterprises in a production group is so large that each manufacturer believes that its actions have little impact and will not attract the attention and reaction of competitors, so it will not be affected by competitors' retaliation measures .

Third, the production scale of manufacturers is relatively small, so it is easier to enter and exit a production group.In real life, monopolistically competitive market organizations are common in retailing and service industries, such as repairs, candy retailing, etc.

Fourth, mutual independence.Each competitor in the market thinks it can act independently of the other, not dependent on the other.A manufacturer's decision-making has little impact on other manufacturers, and is not easy to be detected, and the countermeasures of other manufacturers can be ignored.

[links to related words]

Monopolistic competition means that there are many firms in a market that produce and sell differently identical products.Monopolistic competition is a common market structure in reality, especially in the daily necessities industry.

Monopolistic competition is a concept opposite to free competition, and refers to the general term for various behaviors that exclude and restrict free competition.It and unfair competition belong to the scope of adjustment of the "Competition Law", but there are essential differences between the two: unfair competition does not restrict or exclude free competition, it is on the premise of recognizing and allowing other competitors to participate in free competition , using improper and illegal means to engage in business activities; and the essence of monopoly is to fundamentally reject and restrict free competition, and there is no compatibility with free competition.

(End of this chapter)