A Reflection on Pepsi's Price & Income Elasticity

907 words 4 pages
Pepsi, A reflection on its price & income elasticity
Laura-Ashley Williams
Colorado Technical University

Author Note
This paper was prepared for [ECON212], [CS13-01], taught by [Professor James Pirner] on [July 23, 2014]. Introduction
The product chosen was Pepsi. It is a product produced by PepsiCo, which is one of the world's top marketer of premium juices and soft drinks. PepsiCo offers products to over 200 countries and territories, and our Global Brands are our biggest sellers. Pepsi is a carbonated soft drink sold in stores, restaurants, and vending machines internationally. Pepsi-Cola was created in the late 1890s by Caleb Bradham, a New Bern, N.C. pharmacist. Pepsi is one of the world’s most iconic and recognized
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It will rise, since people will buy less coke and more Pepsi. Thus the demand for Pepsi will rise or also lead to increase of demand for other aerated drinks. Cross-Price elasticity of demand for Pepsi Cola with respect to the price of Coca Cola is equal to a positive value which implies Pepsi-Cola is a substitute for Coca-Cola. The cross elasticity between Coke and Pepsi is high, making them strong substitutes for each other. In addition, Coke and Pepsi together sell about 75 percent of all carbonated cola drinks consumed in the United States. Taken together, the high cross-elasticities and the large market shares suggest that the government would likely block a merger between Coke and Pepsi because the merger would substantially lessen competition.

Since the product Pepsi is elastic in nature therefore if there is a slight increase in the price of the product, there is a tremendous change in demand of the product because of the number of other substitutes available in the market. Pepsi, a normal good is a good the demand for which increases as income increases. The income effect is positive and the substitution effect is positive. Therefore as price increases, demand falls, and vice versa. Normal goods have a positive income elasticity of demand.
Price, Cross-Price, and Income Elasticities of Demand for Coca-Cola and