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Question 1 The concentration producing industry has one buyer and through its value chain Instead costs for advertising promotion market research and bottler relations were significant On the other hand bottling industry is the mid-way player in the soft drink industry There are two suppliers and one buyer involved in its value chain Exhibit 1 Whether two industries are profitable depends on soft drink consumption which had increased for more than 20 years and plateaued in the 1990s The economics of the CP and bottling is very different from each other in terms of number and size of rivals and the scope of competitive rivalry There are two giants competing head to head on the CP industry smaller national producers such as Seven-Up and Dr Pepper are relatively trivial There are a lot of players of same size in the bottling industry Unlike the furious competition between Pepsi and Coke no sense of competition can be felt in bottling industry Reasons are that first Pepsi and Coke control the majority of bottlers in 1990s second intrabrand competition is restricted by the franchise agreement which is protected by Soft Drink Interbrand Competition Act From the view of capital requirement it is easier for others to enter the CP industry than to enter the bottling industry since comparing to 30-50 million dollars requirement to establish a bottling plant covering only one 80th of ability to serve the entire US market the requirement for one CP plant with a nation-wide capacity is only 5-10 million dollars In addition brand loyalty is low in the CP industry since consumers are sensitive to price and there is little switching cost There are many substitutes for soft drinks such as tea beer and milk There is no substitutes existing in the bottling industry and no customer loyalty and switching costs for bottlers since they could only use packages authorized by the franchiser which means no distributors can tell the difference of
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