1. ECONOMICS
Market structure
PRESENTED BY:
AANCHAL NARANG (241)
MONICA MAHALWAL (265)
SHUBHANKAR SORKAR (288)
PARUL GUPTA (297)

2. TABLE OF CONTENTS
• Market structure
• Oligopoly structure
• Kinked demand curve
• Introduction of Pepsi
• Introduction of Coca-cola
• Characteristic of Pepsi & Coca-cola

3. MARKET STRUCTURE
Market structure – identifies how a market
is made up in terms of:
The number of firms in the industry.
The nature of the product produced.
The degree of monopoly power each firm has.
Profit levels.
The extent of barriers to entry.
Firms’ behaviour – pricing strategies, non-price
competition, output levels.

4. OLIGOPOLY

5. OLIGOPOLY STRUCTURE
• "Few" – a "handful" of sellers.
• Oligopolies are price setters rather than price takers.
• Barriers to entry are high.
• Product may be homogeneous or close substitutes.
• Interdependent decision making.
• There are different models of the oligopoly.

6. OLIGOPOLY
NON- KINKED
COLLUSIVE COLLUSIVE DEMAND
CURVE
PRICE
LEADERS CARTELS
HIP
•LOW COST •JOINT PROFIT
MAXIMISATION
•DOMINANT
FIRM
•MARKET
•BAROMETRIC SHARE

7. KINKED DEMAND CURVE
 Developed by Chamberlin to show stickiness of price.
 The assumption behind is that each oligopolistic will
act and react in a way that keeps condition tolerable
for all members of the industry.
 occurs where products are quite similar
and, therefore their prices almost same.
 The oligopoly firm probably realises that it is better to
accommodate its rival rather than start a price war.

8. KINKED DEMAND CURVE
(Cont.)
 The most significant aspect of the solution of an
oligopoly situation is the presence of kink in the
demand curve of the firm.
 The kink shows that price reduction by a firm is
followed by its rival(competitors).
 Therefore firm will not move away from the kink.

9. The Kinked Demand Curve Graph
P
If P increases, others won’t go • A gap in the MR curve exists
along, so D is elastic • A large shift in marginal cost
is required before firms will
change their price
P
MC
If P decreases, other firms
match the decrease, so D
is inelastic
MR D
Q
Q
16-9

10. OLIGOPOLY STRUCTURE
EXAMPLE:
PEPSI & COKE

11. Pepsi co. founder Caleb Bradhem

12. PEPSI
• Type - Cola
• Manufacturer - PepsiCo.
• Country of - North Carolina, U.S.A.
origin - 1898 (as Brad’s Drink) by
• Introduced Caleb Bradham
June 16, 1903 (as Pepsi-Cola)
1961 (as Pepsi)
• 1931 - entered bankruptcy
• 1939 - Company went bankrupt again
On three separate occasions between 1922 and 1933, the Coca-Cola
Company was offered the opportunity to purchase the Pepsi-Cola company,
and it declined on each occasion.

13. Coca-Cola
• Type - Soft drink
• Manufacturer - The Coca-Cola Company
• Country of origin - United States
• Introduced - 1886 by John Pemberton
• Color - Caramel E-150d
• Flavor - Cola, Cola Cherry, Cola
Vanilla, Cola Green Tea,
Cola Lemon, Cola Lemon
Lime, Cola Lime, Cola
Orange and Cola
Raspberry. Variants

14. CHARACTERISTICS
Pepsi & Coca-cola
• Industry rivalry
– Market largely dominated by coca-cola and Pepsi.
– Coca cola market share 51% ( April 2008)
– Pepsi market share 21% ( April 2008)
– The main concentrate producers acts as oligopoly.
– Competition occasionally hampers profitability.
• Threat of new entrants
– Very high barrier to entry.
– Big brand names.

15. • Threat of substitutes
– Expanding through alliances, acquisitions and
internal product innovation (Pepsi creating orange
slice)
– Change in consumer tastes and trends is a
potential threat.
• Bargaining of suppliers
– Sugar or syrup could be purchased from many
sources on the open market.
– Suppliers small and divided.
– Bargaining power of suppliers weak.
• Bargaining of buyers
– Low power since main value added comes from
brand name and concentrate formula.

16. Oligopoly
The kinked demand curve - an explanation for price stability?
Price
The firm therefore, charging demand
IfThe principle of is effectively faces
Assume the firm to lower its price to of
the firm seeks the kinked a price
a ‘kinked demand curve’ forcing it to
gain a curve rests an output of 100.
£5 andcompetitiveon the principle rivals
producing advantage, its
maintain stable or rigid it makes
will followasuit. Any gains pricing will
that:
If it chose to raise price above £5, its
structure. lost and the % change
quickly beOligopolistic firms may in
rivals would not follow suit andits firm
a. If a firm raises its price, the
overcome this smaller than the %
demand will beby engaging in non-
effectively facesnot follow suit
rivals will an elastic demand
reduction in price – total revenue
price competition.
curve for its product (consumers would
would If a firm lowers its price, its
b. again fall as the firm now faces
buy from the cheaper rivals). The %
£5 a relatively inelastic demand curve.
rivals will all do the same
change in demand would be greater
than the % change in price and TR
Total would fall.
Revenue B
Total Revenue A
D = elastic
Total Revenue B Kinked D Curve
D = Inelastic
100 Quantity

17. Sustainable Profits??
• It should not be a problem to sustain their profits
through the next decade. The challenge would
be to sustain their historical rate of growth. To
do so they need to seek out new markets and
increase consumption in currently developing
markets such as China and India.