Answer to Question #175163 in Economics for Vivianne

Question

b) Explain in the context of price discrimination, using economic concepts accurately and in a detailed way, why “corner shops” (small neighbourhood shops that sell a range of food items, cleaning products, sweets, snacks, and drinks) that open earlier than other shops and close later are able to charge higher prices than supermarkets for exactly the same products and still stay in business.

c) Explain using game theoretic terminology why two companies in an oligopolistic market structure, such as Pepsi and Coke, might both be better off if they had a small advertising budget, but despite this both choose a large advertising budget.

Answer 1

b) Supermarkets are characterized by a network-wide marketing policy that does not take into account the characteristics of the area, the habits,

and preferences of people living in the vicinity of the stores. In the case of small stores, communication with customers on a personal level plays an important role, that is, high mobility of changing assortments in connection with customer requests. Also in these shops you can often find those goods that are produced in a handicraft way, that is, are part of the local culture. Price discrimination is undoubtedly present, but it is justified in many cases by the difference in the time frame of work.

c) The big brands Pepsi and Coca-Cola are the leaders in the carbonated beverage market, and they are "pulling" their portfolio brands with them. Each of them interacts with their audience and at the same time creates conditions for the overall growth of sales of the category of carbonated drinks.

These brands coexist in balance - number one and number two, third place for everyone else in the mass. But from the point of view of creating additional advertising activity, war is useful and necessary for both brands to cheer up and cheer up the audience. It is possible for someone new to appear if there is strength, a budget, a well-planned strategy, and God's help. But you need to understand that the brand will exist locally, without large-scale gains. He will not be able to compete.