Pepsi has discovered that “fun for you” (chips and soda) increases revenue more than “good for you” (oatmeal, fruit juice, Gatorade). According to the WSJ, with Pepsi losing market share to Coke, they will focus more advertising dollars on “fun for you.” During 2010, Coke’s soda advertising cost close to $253 million while Pepsi spent almost $154 million.
The WSJ tells us that Pepsi’s CEO, Indra Nooyi cares about “good for you” and believes the consumer wants healthier products. Add to this soda taxes in most states that are supposed to encourage us to eat healthier foods. Or, new federal calorie labeling requisites. Or soaring obesity and diabetes numbers. Bloomberg Radio recently reported that big-and-tall men’s sizes are now being emphasized more by clothing retailers. What to do?
Coke has 42% of the beverage market, Pepsi, 29.3%, and Dr. Pepper Snapple, 16.7%.
The Economic Lesson
Duopoly. When 2 large firms dominate a market with close to 80% of all sales, we can call them a duopoly. One economist has suggested that when deciding whether a duopoly is harmful to consumers and rivals, we should consider innovation, prices and profits.
Some current and past duopolies:
- Fedex and UPS
- Coke and Pepsi
- Home Depot and Lowes
- Kodak and Fuji Film
- Gillette and Wilkinson Sword
An Economic Question: As a duopoly, do Coke and Pepsi have too much power? Explain.