Coca-Cola Company is one of the most influential beverages and soft drinks corporations with global influence and the largest market share. The major input comes from the drinks, whereas the expenses mostly consist of advertising and shipping or handling (“United States Securities and Exchange Commission,” 2015). The production costs are more than half of total revenue, and for example, in 2015, the cost of goods sold was $28749, and net operating revenues were $47498 (“United States Securities and Exchange Commission,” 2015). This means that the gross profit is less than half of the overall revenue. The Coca-Cola Company can be considered vertically integrated because it acquires similar companies and mostly stays within its industry. There is no observable evidence of the horizontal integration of the company. The main threat of entry is the fact that Coca-Cola company uses its economies of scale to reduce the cost of goods sold, which is the major barrier for newly emerging firms (“Most recent annual report,” 2020). In the case of Coca-Cola penetrating another industry, there is no identified threat of entry, because the company does not integrate other markets.
The soda market is a large sector of the economy, which means that there is competition. However, due to the factor of economies of scale, the market can be categorized into six main groups. These are Coca-Cola, PepsiCo, Dr. Pepper Snapple, Refresco, National Beverage, and others. The respective market shares for 2018 are 43.3%, 24.9%, 17.9%, 3.6%, 3.1%, and 7.2% (“Market share of leading carbonated,” 2020). It can be seen that Coca-Cola takes up almost half of the market share and its main competitor’s share twice as little. However, this type of competitive market structure highly optimizes the pricing strategies by lowering them significantly. The four-firm concentration ratios can be derived from the value provided above, which are Coca Cola – 43.4%, PepsiCo – 24.9%, Dr. Pepper Snapple – 17.9%, and Refresco – 3.6% (“Market share of leading carbonated,” 2020). The Herfindahl-Hirschman Index is equal to 1874.89 + 620.01 + 320.41 + 12.96 = 2828.27.
References
Market share of leading carbonated soft drink (CSD) companies in the United States from 2004 to 2018. (2020). Web.
Most recent annual report. (2020). Web.
United States Securities and Exchange Commission. (2015). Web.