Question

Despite its huge population, India had not been considered by foreign beverage producers to be an important market. In addition to the deterrents imposed by the government through its austere trade policies, rules, and regulations, local demand for carbonated drinks in India was very low compared with countries at a similar stage of economic development. PepsiCo entered the Indian market in 1986 under the name “Pepsi Foods Ltd. in a joint venture with two local partners, Voltas and Punjab Agro. An aggressive pricing policy on the one-liter bottles had a severe impact on the local producer, Pure Drinks. The market leader, Parle, pre-empted any further pricing moves by Pepsi Foods by introducing a new 250-ml bottle that sold for the same price as its 200-ml bottle. owned by the giant Indian conglomerate, Godrej. Thegovernmentturneddownthisapplication

In May 1990, Coca- Colaattemptedtore enterIndiabymeansofaproposedjointventurewith a local bottling company just as PepsiCo’s application was being approved. Undeterred, Coca-Cola made its return to India by joining forces with Britannia Industries India Ltd., a local producer of snack foods. The new venture was called “Britco Foods.’ Since then, Pepsi and Cola are the two major competitors in the soft drink market of India.In India, the summer season for soft drink consumption lasts 70 to 75 days, from mid- April to June. During this time, over 50 percent of the year’s carbonated beverages are consumed across the country.

Question-5

i) Identify the category of products to which Pepsi and cola belong.

ii) In elasticity analysis, what type of relationship exist between products like Pepsi and Cola .Explain

iii) Identify any other two products which have similar nature of elasticity like Pepsi and Cola.

iv) Explain how the concept of elasticity is useful for firms in fixing the price of their products.

Answer 1

Answer - (1) pepsi and cola belongs to softdrinks category.

Answer (2) cola and pepsi are substitute goods. They belong to same industry, competing with each other in the consumer market. They have similar demand cuve . If anyone will increase its price then demand for other product will increase eventually.

ANSWER (3) (1 )kitkat chocolate and five star chocolate bar. ( 2 ) Tesco bread and kingsmill. If tesco bread will increase its price then people will substitute it with kingsmill.

ANSWER -(4) Price elasticity is a important factor for firm to decide it's product price as if firm increase its product price firm will loose consumer demand . People will shift to substitute product. On the other hand inelastic demand will allow firm to make variation in its product price such as discount price or promotional price. Inelastic demand will cause slight change in consumer behaviour if price is increased.