A Comparison Of Cross Elasticity Of Coca-Cola And Pepsi

substituted such as other soft drinks or coffee. So, if Coca cola increase their price, people will only choose not to buy as it is just a luxury product, making the price to be elastic. In the definition of market, it is narrowly defined as a kind of soft drinks, and there is a lot of different soft drinks. This mean that it tends to have multiple substitute products possible to be exist, and if there is an increase in price of coca cola, people will find the other substitute, hence there will be a huge change in demand, making the price of Coca cola to be elastic. The longer the period, the more elastic the price of Coca cola. As Coca cola has a lot of competitors, their sales depend on number of cola drinks sold. Hence, there

Many products are related, and cross elasticity of demand indicates just how they are related. With an equation computed:

(% change in the quantity demanded of good B)/(% change in price of good A)

Using Coca-Cola and Pepsi as our substitute products and making comparison. Whereby, c will stand as Coca-Cola and p stands for Pepsi. Below are 4 graphs (a), (b), (c), and (d) drawn to illustrate the supply and demand analysis for substitute goods first before explaining the cross elasticity of the goods. Besides, graphs will be using red line to indicate for Coca-Cola and blue line for Pepsi for a clearer

In this graph when the price of Coke increases we can see the demand for quantity of Pepsi will gradually increase as well. In our case the Pepsi and Coke will be considered a weak substitute which is explained by tutor2u (2015) whereby a large rise in price of Coke will cause a small increase in quantity demand of Pepsi and the graph gradient will usually have a very steep gradient. It is not a close substitute for a small rise in the price of Coke will affect largely on the quantity demand of the Pepsi and a close substitute is always accompanied with a less steep graph. That is fairly untrue for Coca-Cola has been a better well known and trustable trend compared to Pepsi that’s why they are consider a weak substitute proven with (figure 2). No matter what, Coke remains as a top leading and trusted brand therefore Pepsi will not be much of a threat to the brand Coca-Cola as a result it is just a weak