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Table12

Economics

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Table12.1 elasticities of demand for brands of and coffee

	Brand	Elasticity of Demand
Colas	RC Cola	-2.4
	Coke	-5.2 to -5.7
Ground coffee	Folgers	-6.4
	Maxwell House	-8.2
	Chock Full o’Nuts	-3.6

 

First, note that among colas, RC Cola is much less price elastic than Coke. Although it has a small share of the cola market, its taste is more distinctive than that of coke, Pepsi, and other brands, so consumers who buy it have stronger brand loyalty. But even though RC Cola has more monopoly power than coke, it is not necessarily more profitable. Profits depend on fixed costs and volume, as well as price. Even if its share of the market.

Second, note that coffees as a group are more price elastic than colas. There are less brand loyalty among coffee buyers than among cola buyers because the differences among coffees are less perceptible than the differences among colas. Note that the demand for chock full o’ nuts is less price elastic than its competitors. Why? Because chock full o’ nuts like RC Cola, has a more distinctive taste than Folgers or Maxwell.

House and so consumers who buy it tend to remain loyal. Fewer consumers notice or care about the taste differences between Folgers and Maxwell house.

With the exception of RC cola and chock full o’ nuts, all the colas and coffees are quite price elastic. With elasticities on the on order of -4 to -8, each brand has only limited monopoly power. This is typical of monopolistic competition.