Question

1. Provide an example of any two leading companies from the same industry which are competing directly for marketshare. Give a short profile (300-500 words) for each (provide references for your answers). 2. If you are the manager of one of these companies, what pricing policy do you adopt to be in the first position? Why? (100-200 words) 3. When the whole sector of the market is occupied by the little number of big corporations who share the leadership, what do we call this type of market structure? Explain in details the benefit of this market for the leading company and the disadvange of such situation on final consumers (300-500 words)

Answer 1

To start from the very first question the most common example for leading companies fighting for the market share are Pepsi and coke. As we all know that Pepsi belongs to Pepsico and coke belongs to Coca-cola. Both of these leading competitors belongs to the same industry that is BEVERAGE
Both of these companies are fighting for their maket share since 80's and together largly covers a large market share.
Pepsico is an American multinational company and has its headquarter in Harriso. It was formed in 1965 after merging with Pepsi-cola company. It produces products like Mountain Dew, Lay's, Tropicana beverages Etc

Coca cola is also a American company invented in 1886. It has its headquarter in Atlanta. US. The various products manufactured by Coca cola are Coke, Maaza, Lilt, Thums Up.
These companies are such close competitors that they spend huge amount trying to distinguish themselves from each other in terms of Advertisements, Logos, Packaging. They face strong price competition.

2)
Being the manager of a company following only one startegy for pricing would not be very good option and thus I would like to follow both differenciation and a cost leadership policy. To come up to any pricing startegy one has to first look at the factors because of which the market is going to be effected such as political, environmental, cost of production, Demand, capital,number of substitutes available in the market.
So, by going with the strategy of differentiation the company has to keep on adding new products and keep changing the marketing strategy as if kept the same people will go to the best possible substitute available to them.
Also this is something which bothe the company Pepsico and coca-cola has been doing since long. Coca Cola has nearly 200 brands. Adding new products will attract consumers on one hand and on the other will add more value to their brand.
Cost leadership can be achieved by economies of scale. By producing at a very large scale the cost of production can be reduced. The demand can be increased by attractive marketing startegies. To lower down the production cost a great research and effective distribution system is also required.

3) Such kind of market structure is known as collusive Oligopoly. Oligopoly is a market structure where there are few sellers. Under Non collusive the big corpoates though dependent donot set prices. These firms donot fix prices directly or indirectly and continue to compete with eah other. So,basically they act independently even though they are independent. On the other hand the corporates who comes together and set prices are known as collusive Oligopoly. These firms basically merge and fix prices or in other words forms tacit collusion.

Advantages to leading company
A)The very first benefit for the leading company is that they dont have to delve into a price war. They can predetermine the prices and can sell on that prices. Also it means that they can even sell at a higher price and will not even losse their customers to their rivals.
B) It will help them work together as a monopoly and thus giving them more opportunities to earn surplus.
C) It will also help them handling the market uncertainities as major corporates will working together. Also each corporates have a fair idea of what other firm is doing and thus helps excluding unexpected events.
Disadvanatage to Consumer
A)From the consumer point of view it will reduce the consumer surplus as the producers may charge higher prices and over and above the MC. Thus reducing the consumer surplus.
B) Since now the producers are acting as a single seller they may charge higher prices. This higher price will not only lead to increase in consumer cost but may also lead to increase in Inflation.
C) Consumer sovereignty will also be effected as now consumer demand has less role to play in setting the prices.