Does Pepsi compete with Coke? It seems a straightforward question; perhaps you think it has a straightforward answer. Sure they compete, you might say; they are both colas, they are used for the same purpose, they are sold next to each other in the grocery store, and they cost about the same. In fact, however, the answer is far from clear. Whether you think Coke competes with Pepsi may depend on whether you drink one of them. If you do, ask yourself this question: how big a price increase would it take before you would switch from one to the other? A penny? Five cents? Ten cents? What if the price doubled? Maybe you wouldn’t switch at any price. If you are like a significant number of consumers, it would take a pretty dramatic change in price to get you to give up your preferred brand.
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