Question

Why is the price elasticity of demand for Coca-Cola greater than price elasticity of demand for soft drinks generally? Provide another example of good or service where you can see 'Coca-Cola & soft drinks in general' type of relationship in existence.

Answer 1

Solution

The price elasticity of demand for Coca-cola is greater than price elasticity of demand for soft drinks in general because of several reasons:

1.Coca-cola is the leading brand in soft drinks across the globe.So,it's reach is huge across the market.Very less number of brands have such a huge market reach in comparison to Coca-cola.So,higher the customer base more the variance of their demand at different price levels.

2.Price elasticity is more implies that if price of Coca-cola is reduced slightly more and more consumers purchase it leading to higher profits than at the initial price.

If Coca-cola increases by a large margin,then the customers may shift to other soft drink brands like Pepsi which are treated as substitutes for Coca-cola

Example :Take the case of ITC (India Tobacco Company ) and Nestle India.Nestle India's brand " Maggi " is a market leader with a market share of more than 56% and ITC's " Sunfeast Yipee" comes distinct second with a market share of 22 %.Rest all other brands command a very low market shares individually.So,here the situation is similar to that of Coca-Cola and soft drinks..The price elasticity of "Maggi" is much higher than price elasticity of other noodles brand as it is a much strong brand and has a much wider customer reach.

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