On
the May 8th 1886, a pharmacist named John Pemberton mixed syrup that
became a drink that we now refer as Coca Cola.(The coca cola company, 2013) The name Coca Cola is given by
the company’s accountant, Frank Robinson. He thinks that 2Cs will look good in
their advertisement. At their humble beginning, Coca Cola can only be found at
the Jacob’s Pharmacy. They were selling at a rate of 9 drinks a day for 5cents
a glass. However in the year of 1892, John Pemberton sold the rights of Coca
Cola to Asa Candler, who then founded the Coca Cola Company. Now the Coca Cola Company
is one of the world’s largest beverage producers with its main headquarter based
in Atlanta Georgia. With a staggering number of 250 bottling partners and 900
plants worldwide, they produce some of the world’s famous drinks such as Fanta,
Powerade, Sprite and not forgetting their flagship product Coca Cola or now
being simply referred as Coke. As they now had already team up with 23million
different retails stores, their products are sold in 200 different countries.
The company claims that they are selling at a rate of 19,400 beverages every
second worldwide. In 2012 they were ranked as the most valuable brand in the
world, worth $77.8 billion dollars (Statiticbrain,2013).
FACTORS THAT AFFECTS THE DEMAND FOR COCA COLA
In
economic terms, demand is a desire and willingness to pay for a specific good
or service (Investopedia,2009). The law of demand stated that, considering all other factors are
constant, if the price of a good or service increases, the quantity demanded
for it will fall and when the price drops the quantity demanded will increase.
There
are several factors that affect the demand for Coca Cola. The first factor is
substitution. In this case, it’s main substitute product is Pepsi. When the
price of Pepsi increases, consumers will look for substitutes, thus the demand
for Coca Cola increases. The demand curve shifts to the right. However, when
the price of Pepsi decreases the demand for Coca Cola will decrease. The demand
curve shifts to the left. The graph below shows the effect of substitution to
Coca Cola.The demand curve shifts to the right (D0 to
D1). However, when the price of Pepsi decreases, the demand for Coca
Cola will decrease (D0 to D2). The demand curve shifts to
the left. The graph below shows the effect of substitution to Coca Cola.
Income
also plays a very big role in determining the demand. The higher the income,
the higher the demand as the consumer now has higher purchasing power. The
chart below shows the average income in different countries, in U.S Dollar.
(bbc, 2012)
Coca
Cola stated that 21% of their sales are in the United States and only 18% is in
the Asian countries (the coca cola company, 2013). The chart above
clearly stated the reason, as the United States have higher average income,
thus they have higher purchasing power compared to Asian countries, such as
Singapore and Malaysia.
Besides
that, the determinants of demand are the population. Logically we know that the
higher the population, the higher the demand. For example, in the United States
the total population is 313.9 million while in Malaysia it is 29.24 million.
This indirectly makes the U.S have higher demand than Malaysia.
FACTORS THAT AFFECTS THE SUPPLY OF COCA COLA
Supply
is the total amount of goods or services that is readily available for the
consumers (Investopedia,2009). In the law of supply, it is stated that the higher the price of the
goods or services, the quantity supplied will also increase, ceteris paribus.
In
this case, Coca Cola’s supply curve is influenced by the following factors:
·Price
The law of supply stated that the higher the price, the higher the quantity a firm is willing to supply. Coca Cola is more willing to supply more of its beverages in the United States than Malaysia as they can sell it at a higher price of MYR2.60 compare to MYR1.50.
·Number Of Supplier
With 250 bottling partners and 900 plants around the world, Coca Cola is investing another 30billion US Dollar for the next 5 years. Indirectly it increases the supply of the drinks. The supply curve will move rightwards.
·Technology
With the advancement of technology, the Coca Cola Company is able to produce more beverages to cater it’s demand at a lower cost. Besides that, they are also able to produce a number of different brands of beverages such as Fanta and Sprite creating a portfolio worth 16billion dollars.
MARKET STRUCTURE OF COCA COLA
In
oligopoly, a particular market is controlled by a small group of firms (Investopedia,2009). There
are at least 2 firms controlling the market, in which one of it may exert
control over most of the market. Coca cola is an oligopoly firm. The reason it is an oligopoly firm is because in oligopoly there are only a small number of firms. Coca Cola and Pepsi is the two main company of beverages. They also owned a lot of other brands of beverages such as Sprite and Fanta. An oligopoly firm are price setters and most
likely change their price according to their competitors. If Pepsi Co drop its
beverage price, Coca Cola are more likely to follow. The following are some of the
characteristics of oligopoly firm:
1.Number
Of Firms
In
oligopoly there are only a few number of firms (Agarwal, P., 2011). The current two main players in
the beverage industry are Coca Cola and Pepsi
Co.
2.A
Few Barriers to Entry
There
are only a few barriers to entry such as capital cost. It requires a lot of
money to enter the industry. Economics of Scale is also one of the barrier, as
new firms are not able to compete with existing firms that have much lower
production cost. Existing firms that are already in the market such as Coca
Cola makes it even difficult for new firms to join as they created a marketing
barrier. In 2006 alone, Coca Cola spent $2.6billion dollars in advertising in
order to create uniqueness in their product and brand image. However, it does
not mean that a big company such as Coca Cola does not face any issue. Coca
Cola faces a lot of government intervention. Their products are highly taxed
especially by the U.S Government and the British as it’s an unhealthy product.
Political issue among countries also affects the market of Coca Cola as it is
an American product they are unable to sell it in North Korea and Cuba.
3.Nature
Of Products
Product
can either be undifferentiated and differentiated. Coca cola is an undifferentiated
product.
BLACK MARKET FOR COCA COLA IN NORTH KOREA DUE TO EMBARGO
Never
before we thought of that there is black market for Coca Cola as it is sold in
over 200 countries (NewsComAu, 2013). However, according to news.com.au, Coca Cola are available
in the North Korea’s black market. Black markets often happen due to shortage
of supply. However in this case, Coca Cola is unable to enter the North Korea
market due embargo. Embargo happens as a result of unfavourable political
circumstances between nations. In this case it is due to the previous war
between United State and Korea. The North Korea had restricted any products
that are made in America to enter its country. Instead, a distributor in China
ships the product into North Korea. As Coca Cola only available in the black
market, it is simply too expensive for normal citizens to consume the product.
CONCLUSION FOR COCA COLA
In conclusion , even though coca cola operates in an oligopoly structure, it is relatively stable and still able to compete with its biggest rival Pepsi Co and still retain a share of the access profit which result in them earning super normal profit. Being one of the worlds well known brand, Coca Cola would have to use economic theories to further expand their market. With the kind of decision the have been making from the first day of the company, we can see that they are moving into the right direction and will be able to improve and maintain their current pride of being the world's largest beverage company.
REFERENCES
| 1) Agarwal, P, 2013. Market Structure: Oligopoly. [online] Available at:http://www.intelligenteconomist.com/market-structure-oligopoly/ [Accessed: 22 Oct 2013] 2) BBC News. 2012. Where are you on the global pay scale? [online] Available at: http://www.bbc.co.uk/news/magazine-17543356 [ Access: 22 october 2013] 3) Company. 2013. [FAQS]. [Online] Avaliable at : http://www.coca-colacompany.com/contact-us/faqs [Accessed: 25 Oct 2013] 4) Investopedia 2009. Supply Definition/ Investopedia [Online] Available at : http//www.investopedia.com/terms/s/supply.asp [Accessed:25 Oct 2013] 5) Investopedia. 2009. Demand Definition/ Investopedia [online] Available at: http:www.investopedia.com/terms/d/demand.asp [Accessed:25 Oct 2013] 6) Journey of coca cola In-text: (the coca cola company 2013) Bibliography: The coca cola company. 2013 journey of coca cola [online] Available at http://cdn.journey.tccc.psddev.com/a7/5f/95ccf35a41d8adaf82131f36633c/Coca-Cola_125_years_booklet.pdf 7) Statisticbrain.com 2013 Coca cola company statistics/ statistic brain [online] available at : http://www.statisticbrain.com/coca-cola-company-statistics/ 8) The coca cola company. 2013 Untitled. [online] Available at: http://assets.coca-colacompany.com/0e/e5/38a4231e4582a3e57b7f2f2ff459/coca-cola-at-a-glance.pdf |
