Coke Extract Essay, Research Paper
Australia Blocks Bid By Coke to Purchase Cadbury Beverages
The Coca-Cola Company has come under recent fire in most of its international markets. The Chairman Douglas Ivester has made a bold attempt to buy another soft drink Company Cadbury Schweppes. The Australian Government stepped into the transaction saying that Coca-Cola was becoming a monopoly. Allan Fels, the chairman of the Australian Antitrust body admits that substitute goods for Coca-Cola products are not switched to when the price of Coke products increases. Coke selling one of its brands to its rival PepsiCo may solve the situation. Although the Australian Government has denied the deal, other countries such as Ireland, Finland, Poland, and the Slovak Republic have approved it.
Commentary
The problem that the Coca-Cola Company is facing in Australia is being labeled a monopoly. A monopoly is a market with one seller, no substitutes, and barriers to enter the market. Although there are some small companies that offer substitute goods for Coke products, they are often hard to come across or not perfect substitutes as Allan Fels pointed out. The option that the consumers in Australia face is to buy Coke products or switch to a completely different product like juice. The information that is given in the article makes it appear that in most stores there is only one seller, and there are no substitutes.
Also there are many barriers making it hard to enter the soda business in Australia. The biggest barrier is trying to get your company started when Coca-Cola is already so widely accepted and well known. Other barriers include raising the capital to get the business started. Capital consists of office buildings, stores, factories, machinery, and other synthetic goods needed in the production process. Most companies that tried to compete with a large company like Coca-Cola usually end up loosing money.
In the United States the soda market is dominated by PepsiCo and Coca-Cola. When a market is dominated by a few large companies it is called an oligarchy. In an oligarchy the market is dominated by a few sellers, and there are some barriers to entry in to the market.
The major problem facing the Coca-Cola Company in most of their foreign markets is being labeled a monopoly by the governments. In Australia they already control 65% of the market and after the deal they proposed are expected to control 75% of the market. With such strong control over the market Coke has the power to play with their prices and charge more for something, without worrying about the consumers going to a substitute good or a similar product.
The best solution to this problem is for the Australian government to interfere and prohibit Coke from buying Cadbury. This would leave the market with more sellers and give the consumers more choice in the product they wish to consume. In a monopoly the seller can fix a price much higher than a seller could in an oligarchy. For example, people are willing to spend three dollars for a soda if there is no substitute, but in an oligarchy the option of paying two dollars for a substitute is there. This means that the first company may loose some of their consumers unless they lower their price to rival that of their competition. Competition is good for keeping prices low for the consumers.
The other solution to this problem is much more radical and somewhat socialist. The Australian government could either fund or start their own soda company with a product very similar to that of Coca-Cola. It would be much easier for a government to start a company that an individual because they can play with the barriers to the market. They could create a sales tax on Coke higher than for their good, or they could decrease the competition by limiting the amount of sales for Coke.
Of these solutions, I think the best is to prohibit the merger and try to keep the market open for other sellers.