In an industry, there market structures, is defined as ‘The collection of factors that determine how buyers and sellers interact in a market, how prices change, and how different levels of the production and selling processes interact’ [investorwords](online).
In relation to the above definition, we are able to categorize and group industries into one of the following market structures such as perfect competition, monopoly, oligopoly, monopolistic competition, duopoly and natural monopoly.
The main focus of this assignment will be on the soft drinks industry, specifically in the carbonated drinks market. It will identify the market structure which carbonated drinks market within is an oligopoly. According to Sloman (2006) an oligopoly is 'A market structure where there are few enough firms to enable barriers to be erected against the entry of new firms' this relates to the proposal that only handful of carbonated drink firms have a large proportion of total output in the market as determined by the concentration ratio, which is a measurement of competitive behaviour.
Company World Market Share
Coca-Cola Corporation 50%
PepsiCo 20.5
Cadbury Schweppes 7.4%
Other brands 22.1%
In the table below can be seen to identify the four largest firms who have the largest share in the world within the soft drinks industry. These include Coca-Cola Corporation Pepsico and Cadbury Schweppers. The top 3 firms previously mentioned, in total account for of all sales 77.9% in the soft drinks industry based on a 3-firm concentration ratio. According to C. Colburn Hard (1978) Hardy states that duopoly ‘is a special case of oligopoly, with 2 players dominating the market’. In relation to this would be that Coca-Cola and Pepsico have transformed the carbonated soft drinks market. This would be an intense rivalry between coke and Pepsi.
In an oligopolistic market, as there are high entry barriers. By barriers to entry, based on the academic theory it is understood that there are a lot of impediments that deter new entrants from coming into the market to compete with obligatory firms operating in the soft drinks industry. Therefore, firms in the long run will continue to maintain supernormal profits for example Coca-Cola and PepsiCo, this is the top level of profit tied up in assets, in relation to the firm; hence reducing potential firms from entering the market. This relates to the soft drinks as the three firms the table with the largest market share will be able to keep their existing power over the soft drinks market. Barriers to entry in the soft drinks market include brand loyalty, economic scale,
Brand loyalty is one of the major barriers in subject entering the soft drinks market as many customers of carbonated drinks beverage buy only a particular brand, and hardly purchase others. This characteristic make brand image important. Every company spends a lot on marketing and advertising in order to create emotional relationship between brand and customer for example brands Coca-Cola, Dr Pepper, and PepsiCo.
Economic scale of th sofr tdrinks industry