1. If you have noticed, coke is available everywhere compared to pepsi. Suppose you are roaming on the street and you need to drink something. You have a coke vending machine right in front of you and a shop selling pepsi two stops away. That you take some travelling cost also. So instead of going there you will buy a coke from the machine only. That will save your time too. This is what is called by rational thinking.
Rational people think at the margin. They consider every factor and then make a decision.
2. Pepsi is an imperfect substitute of coke. Both of them are in a monopolistic competitive market where the freedom of entry is unrestricted and nature of products is differentiated. This concept is called product differentiation. This leads to competitive advantage and is inconsistent with the conditions for perfect competition.
3. In terms of brand loyalty, coke is far ahead of pepsi. The availability of it as discussed above also plays a significant role in this. There seems to be an aura around coke and customers prefer coke to anything. Any new entrant wanting to enter in this genre of soft drink will definitely face a stiff competition from thus.
This concept is called barriers to entry. They are obstacles that makes it difficult for a firm to enter a market. Here the aura of coke seems to be the factor.
4. How many types and versions of coke have you seen? Well there are some like diet coke, coke zero sugar, cherry coke, caffeine free diet coke, vanilla coke etc. These are all for different segment of customers to appeal to them and is customized for them. Prices are also set accordingly.
This concept is called price discrimination. It means exploiting demand characteristics of different segments of customers to allow the same product to be sold at various prices. Generally , third degree or market based discrimination is followed. Coke also follow this.
5. On a hot day, you take a sip of coke and feel relaxed. Next 3-4 sips are totally refreshing. Over the time as you take more and more sips you feel less satisfied and happy. So the utility you derive from it decreases.
This is called principle of diminishing marginal utility. It states that the more good one obtains in aspecific period of time, the less the additional utility derived from an additional unit of good. This is the reason behind your decreased happiness from the coke.
Rational people think at the margin. They consider every factor and then make a decision.
2. Pepsi is an imperfect substitute of coke. Both of them are in a monopolistic competitive market where the freedom of entry is unrestricted and nature of products is differentiated. This concept is called product differentiation. This leads to competitive advantage and is inconsistent with the conditions for perfect competition.
3. In terms of brand loyalty, coke is far ahead of pepsi. The availability of it as discussed above also plays a significant role in this. There seems to be an aura around coke and customers prefer coke to anything. Any new entrant wanting to enter in this genre of soft drink will definitely face a stiff competition from thus.
This concept is called barriers to entry. They are obstacles that makes it difficult for a firm to enter a market. Here the aura of coke seems to be the factor.
4. How many types and versions of coke have you seen? Well there are some like diet coke, coke zero sugar, cherry coke, caffeine free diet coke, vanilla coke etc. These are all for different segment of customers to appeal to them and is customized for them. Prices are also set accordingly.
This concept is called price discrimination. It means exploiting demand characteristics of different segments of customers to allow the same product to be sold at various prices. Generally , third degree or market based discrimination is followed. Coke also follow this.
5. On a hot day, you take a sip of coke and feel relaxed. Next 3-4 sips are totally refreshing. Over the time as you take more and more sips you feel less satisfied and happy. So the utility you derive from it decreases.
This is called principle of diminishing marginal utility. It states that the more good one obtains in aspecific period of time, the less the additional utility derived from an additional unit of good. This is the reason behind your decreased happiness from the coke.
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