Market Structures: Coca-Cola (Essay Sample)

Market Structures
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Market Structures
INTRODUCTION
A market structure consists of the characteristics of organizations in a given industry. This distinctiveness is mainly based on pricing strategies and the competitive nature of firms in an industry (Sutton, 2009). Market structure is determined by such characteristics as product differentiation, the market share of firms, customer turnover, nature of costs, and number of firms in a market. Market structures can be categorized as monopoly, oligopoly, perfect market, and monopolistic competition. The Coca-Cola Company is a perfect example of an organization in an oligopoly market structure. This paper is going to discuss the various competitive strategies, impacts of the structure to the firm and the efficiency as a result of the structure for the Coca-Cola.
Coca-Cola has an oligopolistic market structure because it is in a market made of a limited number of sellers producing mainly standardized products. An example of firms rivaling Coca-Cola is the Pepsi Company, which produces close substitutes of Coca-Cola’s products. The two organizations produce products with the same taste and targeting the same buyers, but they mainly emphasize of branding and pricing as their product differentiation strategy (Friedman, 2011).
A tight competition exists between Coca-Cola and Pepsi beverage companies. The two both produce drinks with similar flavors and close or same price. This led to the need for the companies to adopt competitive strategies for their survival in the industry. However, Coke takes the large share of the market. Some of the strategies it uses include availing the coke products widely all over the world as compared to Pepsi (Sutton, 2009). This strategy results to convenience and hence the major retail stores go for Coca-Cola products. Massive advertising strategy has worked for Coke. The company spends hefty amounts in advertising using celebrities, bill boards and promotional advertising strategies which make it more popular than Pepsi. The Coke Company enjoys convenience due its pioneer existence in the market. This strategy creates a mental preference of coke to Pepsi in the minds of buyers. Therefore, the company enjoys customer loyalty which makes it to be consumed more than Pepsi (Sutton, 2009). Coke also uses a monopoly strategy in the stores. The consumers are left with no choice, but to buy what is available. Pricing strategies used by Coke give them a competitive advantage over Pepsi. Coke has drinks ranging from low prices to high prices, which makes it affordable for all. The branding strategies go in hand with pricing; coke package drinks in smaller bottles at a low price to large bottles at a higher price hence increased affordability.
Group competitive strategies are essential for the two companies in the industry. Pepsi and Coca-Cola collaborate in controlling the prices of their products. This is a group strategy to ensure no new entrants in the beverage industry. Pricing amendments are usually done in accordance with the kinked demand curve. They lower prices in summer holidays to maximize on the market share. Game theory pricing model takes center stage for profit maximization. This stiff pricing competition creates barrier for new market entrants in the industry. To increase their economic profit, the companies have signed joined contracts (Friedman, 2011). This is mainly a strategy of limiting the number of new entrants that would lead to the reduction of profits. The strategy aims at costs limiting, increased prices, and maximized profits. Joint competitive strategies favors the two oligopoly companies, but they also help the consumers against high prices. This is because in case one of the companies drops out business; the other will become a monopoly and hence high prices.
Advantages of oligopoly structure to Coca-Cola include price stability because of the kinked demand curve in the industry. The structure gives the company an equal opportunity to control pricing with its main competitor (Friedman, 2011). Therefore, Coke enjoys a non-price competition. Oligopoly structure enables the company to enjoy economies of scale due to the limited number of firms in the industry. No threat of new competitors due to the high barriers of entry in the structure.
Disadvantages are not inevitable in the structure. Coca-Cola has to equally have large capital investment to ensure limited number of new entrants. The company cannot decide prices without coordination with the competitor. Prices have to be almost similar for...