Details

Components
Content
Part 1

Pages
1

Introduction of Coca-Cola

History of Coca-Cola

Type of product

3-4

Complement and Substitute goods for product

4-5

Market structure

5-6

Part 2

Comparison of price with other substitutions

6-7

Part 3

Advantage and disadvantage from the firms

viewpoint being as an oligopoly

7-8

Advantage and disadvantage from the customers

viewpoint being as an oligopoly
Law of Demand

8-9
9-10

Theory of Elasticity

10-11

Economies of Scale

11-12

Part 4

Reference and
Appendix

13-14

Content

Part 1
Introduction-Coca-Cola
Coca-Cola is a carbonated soft drink. It is produced by The Coca-Cola
Company of Atlanta, Georgia, and is often referred to simply as Coke (a registered
trademark of The Coca-Cola Company in the United States since March 27, 1944). The
name refers to two of its original ingredients: kola nuts, a source of caffeine, and coca
leaves. The current formula of Coca-Cola remains a trade secret, although a variety of
reported recipes and experimental recreations have been published.
The Coca-Cola Company has, on occasion, introduced other cola drinks under the Coke
brand name. There are many types of Coca Cola for example Coca Cola Zero, Coca Cola
Light or diet coke. Coca-Cola Zero provides real Coca-Cola taste for variety-seeking
consumers. Coca-Cola Zero is sweetened with a blend of low-calorie sweeteners, while
Diet Coke is sweetened with aspartame. As for Coke/Coca-Cola light, in certain
countries, the term "diet" is not used to describe low-calorie foods and beverages. In
these countries, we offer Coke/Coca-Cola light. The sweetener blend used
for Coke/Coca-Cola light is formulated for each country based on consumer preference.
The most common of these is Diet Coke, with others including Caffeine-Free CocaCola, Diet Coke Caffeine-Free, Coca-Cola Cherry, Coca-Cola Zero, Coca-Cola Vanilla,
and special versions with lemon, lime, or coffee. In 2013, Coke products could be found
in over 200 countries worldwide, with consumers downing more than 1.8 billion
company beverage servings each day.
Karl Legerfeld is the latest designer to have created a collection of aluminum bottles for
Coca-Cola. Lagerfeld is not the first fashion designer to create a special version of the
famous Coca-Cola Contour bottle. A number of other limited edition bottles by fashion
designers for Coca Cola Light soda have been created in the last few years.

History of Coca-Cola
Coca-Cola history began in 1886 when the curiosity of an Atlanta pharmacist, Dr. John S.
Pemberton. His curiosity had led him to create a distinctive tasting soft drink that could
be sold at soda fountains. He created a flavored syrup and took it to his neighborhood
pharmacy, where it was mixed with carbonated water. This new beverage was deemed
excellent by those who sampled it. Dr. Pembertons partner and bookkeeper, Frank M.
Robinson, is credited with naming the beverage Coca Cola as well as designing the
trademarked and distinct script. It is still being used until today.
Before to his death in 1888, just two years after creating what was to become the best
worlds selling sparkling beverage, Dr. Pemberton sold portions of his business to various
parties, with the majority of the interest sold to Atlanta businessman, Asa G. Candler.
Under Mr. Candlers leadership, distribution of Coca Cola expanded to soda fountains
beyond Atlanta. In 1894, impressed by the growing demand and desire for Coca Cola to
make the beverage portable, Joseph Biedenharn installed bottling machinery in the rear of
his Mississippi soda fountain, becoming the first person to put Coca Cola in bottles.
Large scale bottling was made possible just five years later, in 1899, three enterprising
businessmen in Chattanooga, Tennessee secured exclusive rights to bottle and sell
Coca-Cola. The three entrepreneurs purchased the bottling rights from Asa Candler for
only $1. Benjamin Thomas, Joseph Whitehead and John Lupton were those who
developed the Coca-Cola worldwide bottling system.

Normal/inferior /luxury of product/service

Coke is a worldwide soft drink in the world and also known as the favorites for our
Malaysian. It costs RM1.60 in our country and it is an inferior good for our citizens. This
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is because rising income leads to reduced demand or decreasing income leads to

increased demand. When income changes demand changes in the opposite direction, this
is calls inferior good. Thus, coke is an inferior good.

Complement and substitute product

The product we have chosen is Coca-Cola beverage by the Cola-Cola Company. Being a
carbonated drink, there are many other substitutes in the market for this category.
Substitute goods are the goods that can satisfy similar needs or desires. We have only
identified and taken a few examples found in the local Tesco hypermarket. The first
substitute identified is an isotonic carbonated sports drink manufactured by Fraser &
Neave Limited called 100 plus. Introduced in 1983, it has since become a very popular
drink in countries such as Malaysia and Singapore. According to 100 plus official website
as of 2012, it commands a dominant 88% of the isotonic beverage market in Malaysia. In
2011, a non-carbonated version called 100Plus Edge was introduced in addition to the
four existing variations: Original, Tangy Tangerine, Lemon Lime, Berries and Active.
The second substitute identified is a lemon-lime flavored, non-caffeinated carbonated
drink manufactured by Charles Leiper Grigg called 7UP. Introduced in 1929 it was
formerly named "Bib-Label Lithiated Lemon-Lime Soda", due to the fact that the drink
contained lithium citrate. As of the late 1940s, 7UP is the third best-selling soft drink in
the world. And in 1950 the manufacturers decided to remove lithium from the drink
recipe in a move to create a healthier drink for the consumers. Moving on to 1961, The
Coca-Cola Company introduces Sprite to compete with 7Up. However in 1967 7UP came
back by marketing 7Up as "The Uncola" as it did not contain caffeine like other
carbonated drinks in the market. This marketing campaign in turn caused sales of 7Up to
soar. Currently there are about 12 existing variations of 7UP available in the market in
various parts of the world.
The third substitute is A&W Restaurants which is a chain of fast-food restaurants
distinguished by its draft root beer and root beer float. A&W began in June 1919 at 13
Pine Street Lodi, California, when Frank Wright partnered with Roy Allen to help Wright
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with the root beer business he started that year. The A&W Company became famous in
the United States. A&W Root Beer was brand after the original name. Then, in 1924
A&W was the first America franchised restaurant chain. The only place to get A&W Root
Beer was on tap at an A&W Restaurant. In 1962, the first overseas A&W restaurant was
open in Guam. The Great Root Beer is created in 1974 to participate in grand openings
and perform community service, such as entertaining at children's hospital. In 1971, a
beverage division began, supplying bottled A&W products to grocery stores. The soft
drinks sold under A&W are root beer and cream soda made by Dr Pepper/Seven Up, Inc.
A&W Restaurants beverages are followed by Agro Tea, Biggby coffee and Starbucks.
The final substitute is Pepsi. Pepsi is a carbonated soft drink that is produced and
manufactured by PepsiCo. It was created and developed in 1893 and introduced as Brads
Drink, then to the Pepsi in 1961, and in select areas of North America. Pepsi was owned
and also founded by Donald Kendall, Herman Lay. Pepsi is stylized convert as pepsi,
formerly stylized in covert as PEPSI is a carbonated soft drink that is produced and
manufactured by PepsiCo. It was advanced in 1893 and introduced as Brad's Drink, it
was renamed as Pepsi-Cola on August 28, 1898, then to Pepsi in 1961, and in selected
areas of North America, "Pepsi-Cola Made with Real Sugar" as of 2014. Pepsi have
alternative beverage product which is PepsiCo begins with Pepsi was invented more than
a century ago. Pepsi have much more with soft drink choices such as Mountain Dew and
Sierra Mist, Aquafina bottled waters, Gatorade sports drinks, Tropicana and Naked Juice,
Lipton ready-to-drink teas and Starbucks ready-to-drink coffees.
For complementary products, the Cola-Cola company themselves have produced various
products to go along with their beverage. First and probably the most sought after of
their products amongst avid collectors, is their refrigerators. Available in many options of
shapes and sizes, they have become an iconic object to keep consumers cans and bottles
chilled for ultimate satisfaction in drinking Coke. The second product to go along with a
Coca-Cola beverage would be glasses to drink them with. Throughout history of The
Coca-Cola Company, many different forms of glasses have been made. Many to
commemorate different festivals and events celebrated around world. Limited editions for
sporting events such as the Olympics and FIFA World Cup have also been made.
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Market Structure of Coca-Cola Company

The market structure of Coca-Cola Company belongs to oligopoly. First, there are few
seller in this market because of the majority of market share in soft drink industry are
controlled by Coca-Cola Company and its competitor Pepsi. The market share of the
small firms that they are still surviving is so small compared to them. Next, the soft drink
industry is very high barrier to entry. In the production of soft drink is required a high
investment in technology, equipment, brand material and advertisement. Thus, the small
firm dont have no enough financial capital and any name recognition and this is the
barrier causes them cant entry into this market. Last, Coca-Cola is selling the
homogenous product with Pepsi so they can control over the prices. Coca-Cola and Pepsi
also have signed a cartel contract. Cartel is a small number of firms acting together to
limit cost, raise price and increase profit. They are acting together to prevent other firm
from entering this market because it will decrease their economic profit. If either of them
exits from this market, the other will become a monopoly. The soft drink price of course
will become higher because the market share is just controlled by one firm.

Part 2
Compare the price of product with other close substitute
For price research we have chosen to get our information from the local Tesco
hypermarket, as it is an international hypermarket company worldwide, as so prices
should be standardized and more reliable. The volume of the bottles we have chosen to
compare is 500mL bottles.
Coca-Cola (Original flavour) was sold at RM2.20, 7UP was sold at RM2.65. Compared
to Coca-Cola price, 7UP is 20.5% more expensive than Coca-Cola. The first reason for
this difference is the packaging of the product. Coca-Cola bottle are usually plain clear
plastic while 7UP bottles are usually in green color, therefore 7UP would have to pay
more for production cost for the dye used to make the bottles. The second is the place
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where each of the company produces their products. Coca-Cola is bottled in Malaysia.
While 7UP is bottled in Nigeria, therefore due to shipping cost to bring 7UP to Malaysia,
7UP would cost more. Finally is probably the difference in the ingredients used for in
both the beverages. Theoretical 7UP should cost more because lemon is included in the
ingredients, while like Coca-Cola the rest of the ingredients is produced chemically by
themselves.

Part 3
Advantages of Oligopoly to firm
Based on the firms viewpoint, if Coca Cola Company operates under the oligopoly
market structure, they will face some advantages and also disadvantages. Under
oligopoly market structure, Coca Cola will having advantage as a price maker, they can
determine their products price and also quantity based on the demand curve to maximize
their profit. Besides, Coca Cola will faced few competitors on its market. Fewer
competitor will limit the choices of soft drink being chosen as substitutes for Coca-Cola
by the customer and also increase the probability to dominate the market, which will
supplying a larger share in the global wide market. Coca Cola Company will going to
earn economic profit in long run. This is cause by high barriers of entry to the market due
to name recognition on Coca Cola, patents and copyrights, scale economies and also
technology use to produce Coca Cola.
Disadvantages of Oligopoly to firm
However, operating under the oligopoly market structure, Coca Cola Company might
facing losses or zero economic profit in short run. Losses or zero economic profit can be
caused by new entrant to the market which attracted the attention of the customer which
are more curious on trying new products. Coca Cola Company are mutual independent
with their rivals such as Pepsi. The rivals action will affect the profit made by Coca Cola
Company. Coca Cola Company has to shapes its policy with an eye to the policies of
competing firms such as Pepsi in order to maintain or increase their profit. Coca Cola
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Company need to strategize, constantly monitoring and anticipating all of the time of the
rivals moves. A single mistake made by Coca Cola Company will affect their profit. This
will place Coca Cola Company in a higher risk situation. Coca-Cola had to spend money
on advertising their products to the public to compete with other similar products. This
will increase their operating cost which will affect their profit.
Advantages of Oligopoly to Customer
From the consumers viewpoint, the advantages of buying a product under the oligopoly
market are simple choice. The goods and services that they are looking for is easier to
compare and choose the best option for them because there are only a few companies that
are producing the specific goods and services. Most of the consumers always choose the
Coca-Cola as their primary options or its substitute goods Pepsi because soft drink
industry is controlled by them. Next, consumer will get a lower price. In the oligopoly
market, the companies will keep their price to compete with the other companies which
are involved in the market. Coca-Cola Company always compare their price with other
brands because they want to attract more consumers despite of lowering their price. This
is a great advantage for the consumer because the prices are going lower and lower as
other companies are lowering their prices to compete with each other. Lastly, consumer
also will get better information on the goods they are going to purchase by referring to
the advertisement made by the company. Each company goes with advertising their
product with providing information on the goods and services they produce in order to
attract more customer. For years, Coca-Cola has created a "family-friendly" image by
utilizing the polar bear and Santa as its identifier in their advertising campaigns and
describes itself as the classic and traditional soft drink producer.

Consumer will

understand more about the goods and they will choose to purchase the goods that are
most suitable for them.

Disadvantages of Oligopoly to Consumer

On the contrary, there are some disadvantages too. Consumer will having limited
choices and option for the goods and services that they wanted to consume because the
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oligopoly market is controlled by a few firms. The consumers can only choose either
Coke or Pepsi and there are no more choices for them because they are the largest firm in
the industry and the consumers are not interested in consuming other new and unfamiliar
brands. So, the few products in the market are not enough for the large population. Next,
oligopolies allow businesses to engage in cartel-like behavior it will reduce competition
between the firms. For instance, Coca-Cola and Pepsi have signed a cartel contract and
they are cooperating together in order to increase their profit. This may result in both
company fixing their price to a higher value in order to maximize their profit, and this
will causes customer to pay more than before for the goods and services. Lastly, fixed
price are bad for consumers. While the competitive price come into but the differences of
the prices are small. This is because the businesses agree to fix the price. The prices of
the Coke and Pepsi are almost the same because they agreed to fix the prices after getting
the agreement from both parties which can maximize their profit. So, there is a set limit
for the price can go, forcing consumer to pay the high prices.
Part 4
Law of demand
According to the law of demand, as the higher the price of a good and service, the lower
the quantity demanded. More directly when the price of a goods falls, the quantity
demanded increases. Therefore, when the price of Coca Cola decrease, the quantity
demanded will rise. There are numerous of reason stated why there is an inverse
relationship between the price and quantity demanded.
Firstly, there is a direct relationship between income of consumer and demand. The
income effects of a price change will affect the demand of Coca Cola. Now Coca Cola
being a normal good, if theres an increase in income, the demand will increase. A price
increase in Coca Cola will decrease the quantity demanded of it due to it reduce a buyers
purchasing power. The buyers cannot buy as many cans or bottles of Coca Cola at higher
prices.
Secondly, taste and preferences of the consumers also influence the demand to greater
extent. In case of Coca Cola, if there are hard core consumers who prefer the taste of
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Coca Cola, even if the price of Coca Cola increases, the demand will remain the same.
But if the consumers have no taste or preference of Coca Cola, then if the price increases
the demand deceases. There are many types of Coca Cola for instance Coca Cola light,
Coca Cola Zero or diet coke. Coca-Cola Zero is sweetened with a blend of low-calorie
sweeteners, while Diet Coke is sweetened with aspartame. As for Coke/Coca-Cola light,
in certain countries, the term "diet" is not used to describe low-calorie foods and
beverage.
Besides that, an increase in the potential consumer population will increase (shift right)
the demand for a good or service. As the potential consumer population increase, the
demand for Coca Cola will increase. Especially, the supplier can considerate to
advertising to promote Coca Cola through newspaper, internet and magazines as will
increase the people know about Coca Cola well that will lead to increase the demand of
Coca Cola.

Theory of elasticity
Theory of elasticity for Coca Cola is the related to the price elasticity of demand and
price elasticity of supply. The Coca cola is measures how the responsive of quantity
demanded is changed price, and compare or estimate to the size of the change in quantity
demanded with size of the change in price. Since, the Coca Cola and Pepsi are measuring
in different units. The price elasticity of demand in theory always force to negative way.
However, the quantity of Coca Cola is always expressed in an absolute value terms, as a
positive value for simplicity. Thus, degree of price elasticity of demand is closely related
to the slope of the demand curve. The coefficient of elasticity is used to quantify the
concept of elasticity. The degree of price elasticity of demand has five type which are
elastic, inelastic, perfectly inelastic, perfectly elastic, and unit elastic. Elastic in Coca
Cola of the price change, the quantity demand will increase more than 10%. Inelastic in
Coca Cola that will affect the quantity demand of Coca Cola rises less than 10%.
Perfectly elastic is equal to infinity when the price is diminishing cost. Unit elastic of
Coca Cola when the price fall, then the quantity of demand rise by 10%.There are
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depends on the availability of close substitutes, it can be weather the Coca Cola is a
luxury or a necessity, the proportion of income spent on the good, and the amount of the
time people have to adapt to a price change.
The Coca Cola of the price elasticity of supply is measuring on how the responsive
quantity supplied is to a price change with make a compare or estimate from the size of
the change in quantity supplied with the size of the change in price. In order to law of
supply, there is a positive relationship between the price and the quantity of supplied. The
price elasticity of supply in theory is always force to positive. Then, the degree of price
elasticity of supply has five types which are elastic, inelastic, unit elastic, perfectly
elastic, and perfectly inelastic. Elastic that can cause the seller price relatively high and
the quantity of supply will rises more than 10%. Inelastic that the price is increase, the
quantity of supply rises less than 10%. The unit elastic when the price of Coca Cola
increase, the quantity rises by 10%. Perfectly elastic of Coca Cola quantity of supply will
changes by any percentage of price. Perfectly inelastic when the price increases, the
quantity changes by 0%.Its effect to the determinant of price elasticity of supply such as
resource substitution possibilities that can make an easier to substitute among the
resources used to produce a good or service, the greater is its elasticity of supply. Next,
the time is frame for the supply to make decision, the time is usually critical in supply
elasticity because of the more costly to the producers to bring forth and release resources
in shorter periods of the time. The supply will become elastic in the long run better than
short run.
The total revenue and elasticity effect to Coca Cola product which is the profit
maximization require that the business set a price that will maximize the firms profit.
The total revenue from the sale of good or service equals to the price of the good
multiplied by the quantity sold when the price is changes, the total revenue also will
change but the price would not increase the total revenue. The elasticity responsive as the
firm control it has over using the price to raises up the profit.

Economies of scale
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Economies of scale is the cost advantage that arises with increased output of a product.
Economies of scale arise because of the inverse relationship between the quantity
produced and per-unit fixed costs. For example, the greater the quantity of a good
produced, the lower the per-unit fixed cost because these costs are shared over a large
number of goods. Coca-cola company has apply economies of scale in order to lower the
cost to manufacture its signature beverage Coke. Coca-cola company produce more at
a time by increasing output standards of its machines and people. Coca-cola is the largest
manufacturer and marketer of non-alcoholic beverages in this world. The company sells
its products in more than 200 countries. The large scale of operations ensures that the
company is able to invest in new markets and reap benefits when the business grows
profitable there. Coca-cola company benefited from the economies of scale, from larger
scale bottling and also large scale advertising. In order to take advantage of the
economies of scale, it is necessary to have a large demand for the product sold. With the
purpose of increasing demand for Coca-cola, the company aggressively advertised CocaCola in newspaper and billboards, making the product known throughout the country and
building the brand name of the company. Coca-cola continually benefited from the
economies of scale by large scale of bottling and advertising as it increases sales and
thereby increases the company's revenue. This contributed to the two factors of profit
maximization: minimization of cost and maximization of revenue. Currently , Coca-cola
is advertised on over 500 TV channels around the world.

Diagram of Economies of Scale

12

This diagram shows that as firms increase output from Q1 to Q2, average costs fall from
AC1 to AC2.

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Reference and Appendix

14

http://www.twoop.com/food/7up.html
http://inventors.about.com/library/inventors/bl7up.htm
http://100plus.com.my/#introduction
http://www.fnbm.com.my/content.php?pagename=100PLUS&id=27

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http://www.coca-colastore.com/
http://www.rootbeer.com.my/about-anw.html
www.pepsicobeveragefacts.com/
http://www.slideshare.net/AnikaTasnim/pepsi-12288667
http://www.awrestaurants.com/

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