dolution

Coke versus Pepsi

In 1931, Pepsi was almost broke. The Great Depression hit it hard, and Coke had most of the duopoly market for soft drinks in the United States. Pepsi tried many things: marketing campaigns, label changes, and more. Then it came up with the idea of selling 12-ounce bottles for 5¢, which had been the 6-ounce price. Coke could have followed the price per unit down, but it didn’t. Total soft drink demand increased, and Pepsi took a larger share of the demand. Why is the equilibrium of this game different from that of a prisoners’ dilemma? (Hint: Change the payoffs of the prisoners’ dilemma to reflect the implied equilibrium.)

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