The Soda Oligopoly

Soda brands Coca-Cola and Pepsi are key examples of an oligopoly.

As we learned in class, an oligopoly is a market form where a market or industry is dominated by a small number of large sellers. In the case of the sodas, they sell similar yet slightly different products. Also, there are very few sellers in an oligopoly and in this case, there are only the two drinks. Coke and Pepsi are similar in the way that they are both versions of cola, yet they slightly differ in the taste of their flavoring. Another factor which relates the two is their appearance, they both have a dark brown color to them. The drinks are considered perfect substitutes since they both have similar versions in taste and appearance. Seeing as they are perfect substitutes, the price elasticity of demand should be perfectly elastic. Yet what many fail to realize is that there are additional factors which result in a fairly elastic demand. If Coke was to increase its price, its customers aware of price change will choose to drink Pepsi instead since the two are so similar.