How to become an oligopoly firm in soft drink market?
(source: "A new-age drink war starts as Soda Flops," Time, December 18, 2000
There are many soft drinks in the market, yet the main suppliers of popular soft drinks are only two: Coke and Pepsi. The soft drink market in America is a very big business with annual sales of $58 billion. Coke, with its patented Coca Cola drink, enjoys the dominant role in the soft drink market, and runner-up Pepsi is always challenging Coke for the top spot.
In recent years, American consumers' preferences for soft drinks was changing from carbonated to non-carbonated soft drinks such as fruit juices or teas. This shift in taste gave Pepsi an excellent chance to challenge Coke. Pepsi purchased food giant Quaker Oats for $13 billion. Quaker Oats produces, in addition to Quaker oatmeal, a very popular non-carbonated soft drink called Gatorade with an annual sales of $2 billion. Pepsi also purchased a popular tonic called SoBe for $370 million. With these additions to its popular Tropicana orange juice, Pepsi now can challenge Coke at least in the non-carbonated soft drink market. Coke belatedly rose to Pepsi's challenge, experimenting with 100 different non-carbonated soft drinks.
Thus, with rapidly changing consumer tastes at work in the modern economy, an economic hierarchy of firms is constantly challenged and often changed. To maintain the oligopoly position, a firm must continue to expand by merger or diversification. More importantly, the firm must constantly search for the changing pattern of consumer taste and immediately adapt to it. Otherwise, a mammoth firm of yesterday simply becomes a dinosaur of today.