An Econometric Analysis of Brand Level Strategic Pricing Between Coca Cola and Pepsi Inc.

Market structure and strategic pricing for leading brands sold by Coca Cola and Pepsi Inc. are investigated in the context of a flexible demand specification and structural price equations. This approach is more general than prior studies that rely upon linear approximations and interactions of an inherently nonlinear problem. We test for Bertrand equilibrium, Stackelberg equilibrium, collusion, and a general conjectural variation (CV) specification. This nonlinear Full Information Maximum Likelihood (FIML) estimation approach provides useful information on the nature of imperfect competition and the extent of market power.