Pepsi exists in an oligopoly market with a duopoly structure. Pepsi is the most widely retailed and spread fizzing drink all over the world. The new entrants in the market would have to offer a healthier and high wellness index drinks in option in order to compete against Pepsi and Coca-cola. In order to maintain a healthy market share, Pepsi would be required to maintain a healthy wellness index in the products and fulfil the customer needs in today’s well conscious society looking after their health. No company looked to collude with Pepsi and instead the market has been seeing the competition with Coca-cola prominent rival. No cartels have also been formed apart from a merger that happened between Gatorade which is a sports drink itself.

1. 1
A
REPORT
ON
MICROECONOMIC ANALYSIS
OF
FOOD & BEVERAGE INDUSTRY
SUBMITTED TO: - SUBMITTED BY: -
PROF. (Dr.) POOJA MISRA Vaibhav Arora (20DM236)

2. 2
MARKET STRUCTURE
Oligopoly:
Pepsi exists in an oligopoly market with a duopoly structure. Pepsi is the most widely retailed and spread
fizzing drink all over the world. The new entrants in the market would have to offer a healthier and high
wellness index drinks in option in order to compete against Pepsi and Coca-cola. In order to maintain a healthy
market share, Pepsi would be required to maintain a healthy wellness index in the products and fulfil the
customer needs in today’s well conscious society looking after their health. No company looked to collude with
Pepsi and instead the market has been seeing the competition with Coca-cola prominent rival. No cartels have
also been formed apart from a merger that happened between Gatorade which is a sports drink and Pepsi itself.
Product Differentiation:
In terms of taste & preferences, Pepsi has a different product with the drink on the slight sweeter side in taste.
 It can be termed as a close substitute but not a perfect substitute to any cola drink.
 Any attempt to increase the prices would result in low sales.
Competition on Quality, Price, Marketing:
 Pepsi’s quality is constancy, design and ease of access due to strong retailing.
 Price – It’s a downward sloping demand curve
Pricing Strategy:
 Segmented pricing strategy is used by Pepsi. For example, Pepsi sells the same product in different sizes
and packaging like pet bottles and cans at varied prices
 Pepsi managed to increase profits and income according to the latest financial reports, which means that
customers are purchasing more of the products and are content with the pricing, had it not been the case
they would have shifted to the nearest substitute.
Key Takeaways:
 In order to choose its behaviour, a firm must always assess its rival well.
 Other firm’s profitability in the market is always influenced by any firm’s behaviour concerning price,
quantity, advertising, or product development.
 Oligopolistic behaviour is complex.
 Firms have to make strategic decisions like whether to raise prices or keep them constant or whether to
compete or plot with rivals.

3. 3
DEMAND & SUPPLY
DEMAND: Demand for a good or a service refers to the quantity of which an individual household is willing
to purchase per unit of time at a particular price.
LAW OF DEMAND: The higher the price, would result in lower the quantity stating the inverse relationship
between the price of a good or a service and the quantity demanded per time period. Its stated as the “law of
demand”.
FACTORS AFFECTING DEMAND OF PEPSI:
 Price of the product: The demand of customers will decrease if the price of Pepsi will rise, with other
things remaining constant.
 Price of substitute goods: Price of other carbonated drinks affects the price of Pepsi. If the price of
Pepsi rises drastically from Rs.15 to Rs.30, price of other substitutes remaining constant, customer will
reduce the demand of Pepsi and will shift to the other carbonated drink and vice a versa.
 Income of customer: The demand of the drink would rise with the price remaining constant after the
increase in the income of the customer.
 Customer’s taste and preference: With a brand loyalty of Pepsi, when there is a rise in the price of
Pepsi, the demand for it will remain unaffected.
 Demographic population of the country: The demand for Pepsi will increase where the market
comprises of more of middle-aged people, youth and kids.
 Time: The demand for Pepsi will increase during festive and summer seasons in a country like India
where there is no dearth of any.

4. 4
SUPPLY: Supply for a good or a service is the willingness and ability of producers to create the same and to
take them to market in specific quantities of output available to consumers at a particular price over a given
period of time.
LAW OF SUPPLY: There is a direct relationship between the price of the good produced or a service
provided and the quantity supplied for the same. When there is a rise in the price of a good or a service,
quantity supplied increases and when there is a fall in price, quantity supplied decreases.
FACTORS AFFECTING SUPPLY OF PEPSI:
 Price of Commodity: The producers would be willing to produce more of the good if the price of it
increases.
 Number of customers: In case of a large customer base the production of Pepsi will increase.
 Price of inputs: The producers would produce more in case of low raw material rates. Thus the supply
would increase. The rise in the prices of raw materials leads to the producers reducing the supply of
Pepsi.
 Seller’s expectations: If the producer expects the demand for Pepsi to fall in near period, he will reduce
the supply of it and vice-versa.
 Subsidies: There would be more profit for a producer in case of subsidizing of the product by the
producer.
 Indirect Taxes: If the government surges the tax that it takes from the producers, there will be
reduction in profit leading to less supply.

5. 5
ELASTICITY
ELASTICITY OF DEMAND: Rate of change in quantity demanded for a good or a service with an
adjustment in price of the commodity is stated as the elasticity of demand.
FACTORS DETERMINING ELASTICITY OF DEMAND OF PEPSI ARE:
 Availability of substitute: In case the price of Pepsi changes, consumer would shift to other carbonated
drinks like Coca-cola, Limca etc. Hence, it shows elasticity of Pepsi is high.
 Time: In short run the demand rests inelastic. The elasticity of demand fluctuates with the length of the
time period. The time period is long enough for consumers to shift their taste and preferences hence, in
case of long run the elasticity of demand is elastic
 Income level: The demand for Pepsi is elastic for consumers of middle income group. In case there is
an increase in the price of Pepsi, the demand amongst the middle income group will decrease.
ELASTICITY OF SUPPLY: The percentage change in quantity supplied of the commodity to percentage
change in price of the commodity produced or service provided is the elasticity of supply.

6. 6
FACTORS DETERMINING ELASTICITY OF SUPPLY OF PEPSI ARE:
 Time factor: There are three supply periods based on the time factor – the momentary period, the short
period and the long period. In the momentary period the supply is fixed, i.e. elasticity of Pepsi is zero. In
the short run the company can increase its variable factors and increase the supply, which means the
relatively elastic. All factors of production can be increased so that the supply becomes more elastic in
the long run.
 Ability to store the product: The more convenient it is to store the product; the more elastic is the
supply of the product. As Pepsi can be stored for a longer period of time, its elasticity is more.
ELASTIC PRODUCT
Pepsi is more elastic in nature as a product.

7. 7
CHALLENGES FACED BY THE COMPANY
 GAPS IN DEMAND & SUPPLY-The Gap in the Pepsi’s assumption of its possible demand and actual
tastes and preferences of the consumer. For example, the Blue and Gold Pepsi variants failed due to lack
of tapping the right market. The Gap in supply existed in the same case to distribute the product where it
would have appealed more.
 CHANNEL CONFLICT- The main conflict arises in the market where the manufactures fail to
provide the services and consumers and retailers fail to comply the local market needs because they are
dependent more on the origin country’s ideology.
 ENVIRONMENTAL IMPACTS- The inefficiency in the overall supply-chain management of Pepsi
has both time and cost implications and therefore contributes further towards it.
 CHANGING CUSTOMER PREFERENCES- Change in lifestyle and health conditions of the
segment is also a major reason. The rising lifestyle related diseases and a more health and wellness
aware society affects the demand of the carbonated drinks.
 COMPETITION- The main competitors of Pepsi are Coca Cola and Mirinda. The competition
becomes fierce due to high engagement in promotional and marketing strategies of the same.
References:
1- http://www. https://www.pepsistore.com/history.asp
2- https://www.bartleby.com/essay/Demand-and-Supply-of-Pepsi-FKRNYC838RVS
3- https://www.investopedia.com/articles/markets/081415/comparing-cocacola-and-pepsis-business-
models.asp
4- http://www.scribd.com