On the 14th of June Coca-Cola’s soft drinks were banned from the markets in
Belgium and later also in Luxemburg and France. Two failures in the bottling
system were the cause for the nausea that the people suffered. According to the
article it would have been better if they would have acted fast and told the
whole truth. Coca- Cola is in an ologopolistic market and therefore branding
plays a great role. It is possible that the company ha lost market shares, due
to this accident. In the ologopolistic market the firms don’t compete with
price, but rather with advertising and other non-price strategies. Therefore one
can predict that this scandal has shifted the demand curve to the left. This
accident can be seen as a negative externality. The government should make Coca
Cola increase their health controls (internalise their externalities), if
scandals of this sort happen again. They can enforce this by either subsidies
(reward) of in this case taxation (punishment). People who would usually only
buy Coca Cola due to the heavy advertising might try a substitute during the
time of the ban. This can be seen as a sort of free promotion for the others in
the market. According to the zero sum game, the lose that Coca Cola is making
right now is directly proportional to the profits the other firms are making in
the respected market. Coca Cola will need to take further actions to restore
their brand name that they have established throughout all these years. This
will significantly influences their total added costs. A strong brand has very
few goods substitutes and it is very difficult for competitors to challenge the
supremacy of the brand. This health scandal might have opened the doors fro new
competitors. In the long run this can lead to Coca Cola’s costs for
advertising to increase or furthermore they could lose control of the market and
fall into a disequilibrium. The accelerator theory suggests that the level of
planned investments varies with the rate of change of income or output rather
than with the rate of interest. It will be hard for the big American company to
fulfil their expectations of expansion in Europe with no investors being pleased
with their progress.