Prior to 1999, PepsiCo

Prior to
1999, PepsiCo did not have a product that competed directly against
Sprite and had to decide whether to introduce such a soft drink. By not
introducing a lemon-lime soft drink, PepsiCo would continue to earn a
$200 million profit, and Coca-Cola would continue to earn a $300 million
profit. Suppose that by introducing a new lemon-lime soft drink, one of
two possible strategies could be pursued:(1) PepsiCo could
trigger a price war with Coca-Cola in both the lemon-lime and cola
markets, or (2) Coca-Cola could acquiesce and each firm maintain its
current 50/50 split of the cola market and split the lemon-lime market
30/70 (PepsiCo/Coca-Cola). If PepsiCo introduced a lemon-lime soft drink
and a price war resulted, both companies would earn profits of $100
million. Alternatively, Coca-Cola and PepsiCo would earn $275 million
and $227 million, respectively, if PepsiCo introduced a lemon-lime soft
drink and Coca-Cola acquiesced and split the markets as listed above. If
you were a manager at PepsiCo, would you try to convince your
colleagues that introducing the new soft drink is the most profitable
strategy? Why or why not (explain)? Can you draw any general conclusions
from this case study

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