The Coca-Cola has long been accused of being a monopoly and making use of ‘monopolistic’ practices to stifle competition. Much of this accusation has come from Coca-Cola’s long time nemesis PepsiCo Inc. and centers around Coke’s marketing[B1], strategy. A monopoly is a company that possesses such control of a particular commodity that it has the power to control prices, and has the influence to shut [B2]competitors out of the market[B3]. Because of the existence of PepsiCo Inc. Coca-Cola is not a monopoly despite its perhaps monopolistic practices. [B4]
The definition of a monopoly is a difficult thing to nail down, especially since a great many people and business entities have different ideas as to what constitutes a company with monopolistic power. The major facet of our government that deals with the issue of antitrust and monopolies is the U.S. Department of Justice. The Department is the leading authority in determining what, specifically, constitutes a monopoly. It has a public document that details how monopolies directly control prices:
Monopoly power can harm society by making output lower, prices higher, and innovation less than would be the case in a competitive market… The Second Circuit has defined monopoly power as "the ability ' to price substantially above the competitive level.[1]
The Department of Justice explains the egregious damage a monopoly can cause and explains the degree to which they can raise, and thereby change, the price of a given commodity. We have established that a tell tale sign of a monopoly is a company that can single handedly raise prices.
Oftentimes, when our nation is confronted with a difficult decision we turn to our government, more specifically the Supreme Court. The Supreme Court needs little proof of its power in this day and age, and is the most powerful court in The United States. The ability to control prices is defined by the Supreme Court:
The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself… A firm is not defined as a monopoly until it has achieved monopolistic status. The mere threat of becoming a monopoly, unless direly eminent, is not reason for legal recourse[2]
The Supreme Court, and thereby U.S. law, dictates that a monopoly must shut out competition with anticompetitive practices, and also to achieve non-competitive status. A firm or corporation must reach this threshold laid down by the U.S. government that differentiates large and influential corporations from outright monopolies.
PepsiCo Inc. has made numerous claims and enacted a variety of lawsuits against its competitor on the accusation that Coke controls such a vast amount of the beverage industry it could completely control beverage prices. It is certainly true that an increase in Coke’s prices would greatly affect the wide range of products humans buy from them. This is not the entire story, however, as PepsiCo Inc. has raised its prices along with coke at almost every opportunity. For example, Horatio Alvarez, a noted journalist for Epicstocknews.com, commented on Pepsi’s joint raise with coke under the guise of increasing commodity prices:
Pepsi communicated retailers of price increases of 3-5% between July 10 and around Labor Day. In line with its rival, Coca-Cola is also finding tough to control the higher prices input costs such as goods like corn, oil and packaging.
Coca-Cola, the world’s largest soft drink maker, made a statement that it estimated to raise the prices for its products, but never mentioned any time frame.[3]
As shown to us by Mr. Alvarez, Coca-Cola does not have exclusive control over the prices of beverages. Both Coke and Pepsi Control the prices and raise them with the cooperation of the other. This is hardly a monopolistic level of influence held by Coca-Cola itself.
If any doubt remains as to Coke’s ‘monopoly’ on beverage prices one need only look so far as Saudi Arabia. PepsiCo Inc. has a much larger pat of the market in the Arab world including Saudi Arabia. In 2009, also under the excuse of rising costs, Pepsi increased its prices by more than 50%. This was first published by the well respected news source, Arabianbusiness.com, which is one of the leading papers in the Western World on business in that sphere of the world,
A can of Pespi-cola now costs SR1.50 ($0.40), up from SR1 ($0.27), while a 2.25 litre bottle costs SR5 ($1.30) instead of SR4 ($1) previously, Arab News reports on Thursday.
Rival drinks manufacturer Coca-Cola has kept its prices the same, the paper reports.[4]
The news source from The Middle East shows us the depths of Pepsi’s hypocrisy. Where Pepsi is dominant over Coke, it greatly raised its prices even when Coca-Cola abstained from doing so. Coke’s lack of increased prices shows how it is not, in fact, a monopoly. It is just a more successful company than PepsiCo Inc.
With regard to the other aspect of being a monopoly, the ability to shut out competitors, PepsiCo Inc. has a more valid argument. The fact remains, however, that Pepsi’s existence is testament to the open market before Pepsi. Pepsi relentlessly assaults Coke with lawsuits when Coke tries to compete with it. Dave Rovella of acclaimed Bloomberg news reveals how Gatorade, a product sold by PepsiCo Inc. makes up a substantial portion of the market and that Pepsi has moved to sue Coke on unfair advertising claims:
Gatorade controlled 77 percent of the U.S. sports drink market in 2008….
Coca-Cola claims its sports drink is superior because Powerade ION4 contains calcium and magnesium, according to PepsiCo. PepsiCo said in an e-mailed statement that the amount of the minerals in Powerade ION4 is less than 0.5 percent of their recommended daily allowances.[5]
Mr. Rovella shows us how yet again Pepsi moves to protect its dominance over parts of the beverage industry via lawsuits and its own monopolistic practices. Coke was well within its rights to claim that it’s drink was the best one available to consumers. Companies constantly claim that their product outmatches the competition in every way. Once more it is clear that Coke does not maintain a monopoly on beverages, especially since PepsiCo essentially controls the sports drinks aspect of the market.
A major issue that is brought up in the accusation that Coca-Cola is a monopoly is the company’s policy of entering non-trade agreements with distributors. For example, Coke will require food distributors to carry only coke beverages, else they will cut off the supply. While this is certainly a monopolistic practice, it does not make Coca Cola a monopoly. We are shown why by the well respected journalist and editor David Greising of Business Weekly. This insightful man points to the thousands of independent food distribution companies free of any binding contract with coke:
There are more than 3,000 independent distribution companies, many of which would be available to Pepsi, and the No. 2 soft drink company also could reach fountain customers directly, through its own distribution channels….
there's nothing in its conduct that would prevent Pepsi from reaching its customers via distributors not currently doing business with Coke.[6]
We can see here that while Coke does in fact control a large majority of the beverage industry, it does not maintain a monopoly on it. Coke does not influence thousands of companies in a non-fair trade manner and therefore can not be considered a monopoly.
Many would argue that the Coca-Cola company is engaged with a number of unethical practices to maintain its dominant position in the beverage industry. Few people would contest this statement. The allegation that the company is a monopoly, however, the allegation that it can single handedly control beverage prices and shut competition out of the market are completely false. Coca-Cola does not have the money and influence to achieve this level of dominance and therefore is not a monopoly.
[1] United States Department of Justice. Competition and Monopoly: Single-Firm
[2] Conduct Under Section 2 of the Sherman Act, September 2008
[3] Horatio Alzarez, Coca-Cola Co. to Raise Prices in July, June 24 2011, http://www.epicstocknews.com/20110624418/news-stories/coca-cola-co-to-increase-prices-in-july/
[4] Eliza Baxter, Pepsi Raises cost by 50% in Saudi, December 20 2009, http://www.arabianbusiness.com/pepsi-raises-cost-for-can-by-50-in-saudi-10153.html
[5] David E. Rovella, PepsiCo Sues Coca-Cola Over Powerade Advertisements, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aYXGQIH6Hisk
[6] David Greising, Coke: Pepsi’s Lawsuit is All Fizz, May 28th 1998,
http://www.businessweek.com/bwdaily/dnflash/may1998/nf80528e.htm
[B1]Commas missing
[B2]Comma error
[B3]WAIT!!! This needs to be 3 paragraphs! Review how you organized your last essay. You’ll see that you need to have a paragraph for each criterion. This is what makes a definitional essay a definitional essay.
[B4]Comma error—the rest, from here on out, are on you, pal.
Adrian: Since you didn't post this in your dropbox (!!!), I'm (briefly) commenting here. In this version, you've taken far more time laying out, carefully, your definition of "monopoly," and now I can better understand your argument that the existence of Pepsi--and the way Coke and Pepsi battle it out--demonstrates that C does not have a monopoly. I wonder if, in this day and age, there are any monopolies or if monopolies are even possible. Wasn't Microsoft found guilty of acting monopolistically even they were not a monopoly? I'm not sure.
ReplyDeleteThe writing itself is a little rough here and there in terms of the formatting, but there were no major, glaring problems. You've written eloquently in parts of this essay, and you've advanced a pretty convincing case.
Next time, dropbox (so I can get you comments earlier).
Final grade: A-