On the 14th of June Coca-Cola’s soft drinks were banned from the markets inBelgium and later also in Luxemburg and France.
Two failures in the bottlingsystem were the cause for the nausea that the people suffered. According to thearticle it would have been better if they would have acted fast and told thewhole truth. Coca- Cola is in an ologopolistic market and therefore brandingplays a great role. It is possible that the company ha lost market shares, dueto this accident. In the ologopolistic market the firms don’t compete withprice, but rather with advertising and other non-price strategies. Therefore onecan predict that this scandal has shifted the demand curve to the left.
Thisaccident can be seen as a negative externality. The government should make CocaCola increase their health controls (internalise their externalities), ifscandals of this sort happen again. They can enforce this by either subsidies(reward) of in this case taxation (punishment). People who would usually onlybuy Coca Cola due to the heavy advertising might try a substitute during thetime of the ban.
This can be seen as a sort of free promotion for the others inthe market. According to the zero sum game, the lose that Coca Cola is makingright now is directly proportional to the profits the other firms are making inthe respected market. Coca Cola will need to take further actions to restoretheir brand name that they have established throughout all these years. Thiswill significantly influences their total added costs. A strong brand has veryfew goods substitutes and it is very difficult for competitors to challenge thesupremacy of the brand. This health scandal might have opened the doors fro newcompetitors.
In the long run this can lead to Coca Cola’s costs foradvertising to increase or furthermore they could lose control of the market andfall into a disequilibrium. The accelerator theory suggests that the level ofplanned investments varies with the rate of change of income or output ratherthan with the rate of interest. It will be hard for the big American company tofulfil their expectations of expansion in Europe with no investors being pleasedwith their progress.
