An Econometric Analysis of Brand-Level Strategic Pricing Between Coca-Cola Company and PepsiCo

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 line...

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Bibliographic Details
Published inJournal of economics & management strategy Vol. 14; no. 4; pp. 905 - 931
Main Authors Dhar, Tirtha, Chavas, Jean-Paul, Cotterill, Ronald W., Gould, Brian W.
Format Journal Article
LanguageEnglish
Published 350 Main Street , Malden , MA 02148 , USA , and PO Box 1354, 9600 Garsington Road , Oxford OX4 2XG , UK Blackwell Publishing, Inc 01.12.2005
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Summary: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, and the 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.
Bibliography:ark:/67375/WNG-7044BDDV-H
istex:22428A32F688579B814D3148D0777DA835140239
ArticleID:JEMS087
This research was supported by a USDA CSRS grant 2002‐06090 to the Food System Research Group, University of Wisconsin‐Madison and USDA CSRS Grant 00‐34178‐9036 to the Food Marketing Policy Center, University of Connecticut. The authors are greatly indebted to the FMPC ‐ University of Connecticut for providing access to the data used in the analysis. Any errors and omissions are the sole responsibility of the authors. A version of the paper was presented at the 5th INRA‐IDEI conference on Industrial Organization and Food Processing Industries, Toulouse, France, June 20002.
ISSN:1058-6407
1530-9134
DOI:10.1111/j.1530-9134.2005.00087.x