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Question 1: The high profitability of the soft drink industry is as a result of combined factors of high products demand and regional market monopolies. There are limited soft drink operators in the market, while the products themselves are complements of other foods and beverages. Low competitions and high market demands lead to making of large sales volumes, which in turn make the companies in the industry make high profits.
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Question 2: The soft drink industry has been dominated by the Coke and PepsiCo, which are regionalized, hence, minimizing competitions/ increasing monopoly. This duopoly of companies has been created by the franchisee agreement signed by two companies with the existing bottlers to limit quantity of product supply. Through this practice, Coke and PepsiCo being the core shareholders of bottling companies create entry barriers to any potential new competitor by increasing the entry expenses, while they enjoy benefits of early market entry with low expenses.
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Question3: The competition between Coke and Pepsi will lower the price and reduce the profits of the industry significantly in the effort of maximizing their sale. This will result to significant lowering of prices of the products and companies engagement in extensive advertisements and promotion.
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Question 4: With restricted entry into the soft drink industry, both Coke and PepsiCo maintained their profits through the 1990s and beyond. The success of Coke depends on extensive advertisements of soft drinks as new products in the markets of developing nations. Pepsi on the contrary, should embark on diversifying its products by developing new brands of soft drinks with various tastes to serve the needs of individual consumers.
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