Cola wars game theory

Coke and Pepsi may realize it is damaging to run concurrent promotions, and so they prefer to run non-overlapping promotions to benefit both companies. The odds of this happening by pure chance is very slim: Let Game Theory Begin: Airlines share the development cost.

Pepsi gain was less dramatic but also substantial. The auction consisted of rounds of open bids. Read about meor email me.

Pepsi gained market share in the late s versus Coke. Developing new products and advertising existing ones are fixed costs, unrelated to the number of cases sold.

Let Game Theory Begin: Anticipating Your Rival

The Holland Sweetener Co. Sales can also lead to increasing brand awareness. Game theory helps firms better assess their own negotiating position. Coke chose the worst.

To prevent disruptive bids, each bidder was required to maintain active participation in the auction, Kwerel says. Miller beer, Charmin vs. Price wars between two elephants in an industry with barriers to entry tend to flatten a lot of grass and make customers happy.

Statistically it seems that Coke and Pepsi, Cola wars game theory these other brands, are involved in some type of silent cooperation. The real benefit of game theory is finding areas of cooperation, Luby adds. The more customers there are in a given region, the more economical the distribution.

Equally important, the distribution of soda to the consumer benefits from regional scale economies. Dixit, economics professor at Princeton University. Selling bulky and heavy beverages lends itself to regional economies of scale advantages. Suppose Coke and Pepsi offer coupons for the same holiday weekend.

But rarely would the two ever be on sale at the same time. This tactic ensured that for every dollar of revenue Pepsi gave up, Coke would surrender four dollars.

I came across an interesting explanation using game theory that I want to share. The pattern struck me as odd, and others noticed it too. Most customers are going to stick to their favored brand, and it is unlikely that either company can even attempt to gain market share.

Contact me by email: They hardly ever result in a dead elephant. Why did they help raise profitability? The same thing seemed to happen with other brands too, like Budweiser vs.

The point of price promotions The logic comes from the book The Art of Strategy which is a wonderful introduction to game theory. Brandenburger, business strategy professor at the Harvard Business School. The lesson is a price promotion is most valuable when another company is not running one concurrently.

Kwerel, senior economist at the FCC. Still, there are better and worse ways of initiating a price contest. In the soft drink world, the sources of these advantages are easy to identify. The soda companies cannot operate successfully unless their bottlers and distributors are profitable and content whether company-owned or franchised.

With so much debt to service, Coca-Cola Enterprises had to concentrate on the tangible requirements of cash flow rather than the chimera of gaining great hunks of market share from Pepsi. One week Coca Cola products might be on sale, but the next week it would be Pepsi.

Low prices attract customers and help a company build market share. PepsiCo responded by dropping the Pepsi Challenge, toning down its aggressive advertising and thus signaling that it accepted the truce.1 1.

Game describe situations where there is potential for conflict and for cooperation. Many business situations, as well as many other social interactions have both of these such.

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If so, share your PPT presentation slides online with This solution uses the example of Coke and Pepsi to illustrate game theory. It explains why game theory is used to analyze oligopolistic markets, and uses a payoff matrix to show why Coke and Pepsi engage in non-price competition but not price competition.

Funware, A New Game Theory For Marketers

The cola companies buy raw materials of sugar, sweeteners and flavorings from many suppliers then they turn the commodities into a branded product which consists of syrup/concentrated combined with water and bottles.

Game Theory also can help firms look beyond the traditional roles of competitors, customers and suppliers, says Barry J. Nalebuff, management professor at the Yale School of Management and author of the forthcoming book on game theory, ''Co-opetition'' (co-authored by Adam M.

Brandenburger, business strategy professor at the Harvard Business. The Joy of Game Theory shows how you can use math to out-think your competition. (rated /5 stars on 35 reviews) (rated /5 stars on 35 reviews) The Irrationality Illusion: How To Make Smart Decisions And Overcome Bias is a handbook that explains the many ways we are biased about decision-making and offers techniques to make smart decisions.

Cola wars game theory
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