Business, 14.06.2021 20:50 roshawnandries5471

How you can convince your colleagues that introducing the new soft drink is the most profitable strategy by explaining the reasoning and theoretical analysis?

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Answer from: indiaseel5940

The question is incomplete. The complete question is :

Coca-Cola and PepsiCo are the leading competitors in the market for cola products. In 1960 Coca-Cola introduced Sprite, which today is the worldwide leader in the lemon-lime soft drink market and ranks fourth among all soft drinks worldwide. Prior to 1999, PepsiCo did not have a product that competed directly against Sprite and had to decide whether to introduce such a soft drink. By not introducing a lemon-lime drink, PepsiCo would continue to earn a $200 million profit and Coca Cola would continue to earn a $300 million profit.

Suppose that by introducing a new lemon-line soft drink, one of two possible strategies could be pursued : (1) PepsiCo could trigger a price war with Coca-Cola in both lemon-lime and cola markets or (2) Coca-Cola could acquiesce and each firm maintains its current 50/50 split of the cola market and split the lemon-lime market 70/30 in favor of Coca-Cola. If Pepsi introduced a lemon-lime drink and a price war resulted, both companies would earn profits of $100 million. Alternatively, Coca-Cola and PepsiCo would earn $275 million and $227 million, respectively, if PepsiCo introduce a lemon-lime drink and Coca-Cola acquiesced and split the markets as listed above.

Diagram this situation using the extensive or tree-form of a game.

How you can convince your colleagues that introducing the new soft drink is the most profitable strategy by explaining the reasoning and theoretical analysis?

Solution :

The game can be represented in a way that is shown in the file attached below.

The $\text{best response of Coca-Cola}$ if Pepsi introduces the new product is $\text{to acquiesce}$ to earn $\$275$ million rather than starting a price war with Coca-Cola and earn only $\$100$ . Thus, while $\text{Coca-Cola}$ might use the strategy to threaten by starting a price war in the attempt of keeping out of the market, the threat will not be credible, so the best option is to introduce the new soft drink .

How you can convince your colleagues that introducing the new soft drink is the most profitable stra

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