An Econometric Analysis of Brand-Level Strategic Pricing Between Coca-Cola Company and PepsiCo. |
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| Authors: | Tirtha Dhar Jean-Paul Chavas Ronald W. Cotterill Brian W. Gould |
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| Affiliation: | Sauder School of Business University of British Columbia Vancouver, BC V6T1Z2 Canada; Department of Agricultural and Applied Economics University of Wisconsin-Madison Madison, WI 53706; Department of Agricultural and Resource Economics University of Connecticut Storrs, CT 06269-4012; Department of Agricultural and Applied Economics University of Wisconsin-Madison Madison, WI 53706 |
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| Abstract: | 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. |
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