Cola Wars Continue: Coke and Pepsi in 2006

We want to understand HOW Coke & Pepsi have managed to maintain very high profitability over the course of their existence.There are 2 tools I want you to use to show.

Porter's 5 forces

Game Theory

1)Analyze buyer power.Use Porter's framework & definitions.

2)Analyze seller power.Use Porter's framework & definitions.

Note: for 1 & 2 above, it is helpful to look at current (2006) buyer & seller power and historical buyer & seller power.Actions taken by the firms are based on the historical level of power, so it is they dynamic path of these that are important to look at.

The two firms have followed very similar historical paths.Think about Profit = Total Revenue - Total Cost.At different stages in their development the firms aimed at one or the other of the two components of profit.These stages can be (generally) differentiated.

For example: in the 1970s Coke & Pepsi tried to ___________________ (either increase revenue or decrease costs) by doing ______________________ (strategy) which is based on the economic theory of __________________.

While there was a lot of imitation by the rivals, there are also instances where the rivals chose not to imitate or tried a strategy different from their rival.

We are concerned with VERTICAL CHOICES here.

3)Discuss choices in the rivalry where the two firms imitated each other in terms of VERTICAL CO-ORDINATION.Make sure to address

a)Is this imitation strategy a cost-cutting strategy or revenue increasing strategy?

b)Defend the firms' strategy with economic principles

c)Explain why the firms' chose (or were forced) to imitate their rival's strategy

4)Discuss VERTICAL choices in the Cola War where the two firms deviated in strategy (i.e. didn't imitate the other).Make sure to address

a)Is this imitation strategy a cost-cutting strategy or revenue increasing strategy?

b)Defend the firms' strategy with economic principles

c)Explain why the firms' chose (or were forced) to imitate their rival's strategy

5 ) Use repeated interactions in game theoretical context to explain what's going on between the two firms (note: it is important to understand global market developments), specifically how are they able to sustain such high profits for such a prolonged period of time.