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Abstract
We investigate market structure and strategic pricing for leading brands sold
by Coca-Cola Company and PepsiCo. in the context of a flexible demand
specification (i.e., nonlinear AIDS) and structural price equations. Our flexible
and generalized approach does not rely upon the often used ad hoc linear
approximations to demand and profit-maximizing first-order conditions, andthe assumption of Nash-Bertrand competition. We estimate a conjectural
variation model and test for different brand-level pure strategy games. This
approach of modeling market competition using the nonlinear Full Information
Maximum Likelihood (FIML) estimation method provides insights into the
nature of imperfect competition and the extent of market power. We find
no support for a Nash-Bertrand or Stackelberg Leadership equilibrium in
the brand-level pricing game. Results also provide insights into the unique
positioning of PepsiCo.’s Mountain Dew brand.