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10 Dec 2018

Describe the effect on Coca-Cola’s demand curve if the price of Coke is reduced. Also, what is the effect on Pepsi-Cola’s demand curve from that Coke price change?

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10 Dec 2018
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Related questions

The demand curve for Coke has been estimated to be:

Q =20 – 3PCoke + 5.5PPepsi+ .75 I

Where Q is the quantity of Coke purchased

PCoke is the price of Coke

PPepsi is the price of Pepsi

I is the income of consumers

Assume that currently the price of Coke is 1, the price of Pepsi is 2, and income is 10.

A. Calculate (using the point estimate and the current values) the own-price elasticity of demand for Coke

B. Calculate the cross-price elasticity of demand for Coke.

C. Calculate the income elasticity of demand for Coke.

D. What does the sign of the cross-price elasticity indicate about Coke and Pepsi?

E. What does the sign of the income elasticity indicate about Coke?

F. Is Coke a luxury or necessity? Explain.

G. If Coke wants to increase its sales revenues should it raise or lower the price of Coke—explain using concepts of elasticity.

Elasticity - point method (since you have estimated equation)

Coke and Pepsi are competing over price. They can choose either a high price or a low price. Their decisions are simultaneous and payoffs are profits. See the payoff matrix below, with the first payoff going to Pepsi and the second going to Coke:

Coke H L

Pepsi H 65, 105 70, 100

L 100, 70 85, 85

a. List the strategies of both firms considering the two potential strategies of their opponent. (i.e. Coke should do what when Pepsi chooses low?)

b. What is the Nash Equilibrium of this game? Explain.

c. Is there a potential collusive agreement? If so, would you expect it to last if the game was played 20 times? Explain.

d. Instead of the game being simultaneous, as-sume that the game is sequential with Coke being a price leader (so Pepsi will see Coke's decision before make their own). Set up the sequential game, keep the payoffs consistent for both firms. Does your expectation of the game's outcome change when Coke is a price leader? Why or why not?

The Coca-Cola Company (Coke) and Pepsico (Pepsi) must independently decide how much to spend on advertising this year (low, medium, or high advertising expenditures). Each firm's decision will affect its own profits, as well as the profits of its competitor. The following payoff matrix shows the possible outcomes for this game between Coke and Pepsi. Here Coke is the row player and Pepsi the column player. Coke's available strategies are listed on the left (it can choose the rows labelled Low, Medium, or High). Similarly, Pepsi's available strategies are listed at the top (it can choose the columns labelled Low, Medium, or High). Interior cells show the profits (measured in millions of dollars) for each firm, with the profits for the row player (Coke) listed first, followed by profits for the column player (Pepsi). For example, if Coke chooses a low advertising budget while Pepsi opts for a medium budget, then the profit will be $7 million for Coke and $10 million for Pepsi.
    Pepsi's Strategies
    Low Medium High
   
Coke's
Strategies		 Low 9, 11 7, 10 5, 12
Medium 8, 6 8, 7 8, 10
High 10, 4 9, 5 6, 6
  1.3. At the game's Nash equilibrium, what are the combined profits of Coke and Pepsi, measured in millions of dollars? (For example, if the answer is $14 million, enter "14.")

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