Cola Wars
Second, they would do so before they
had to pay for the long-term benefit of this strategic advantage. In other words, the price
of these acquisitions would rise disproportionately if Coke and Pepsi waited for
significant consolidation to occur within the industry.
If this were indeed the reasoning behind Coke and Pepsi’s rationale, pursuing a policy of
vertical integration would be justified in economic terms.
Perhaps, however, it is more likely that concentrate producers were merely working to
meet a set of irrational expectations of the investor community. If Wall Street analysts
sincerely believe the purported explanations set forth by Yoffie and Foley, it could make
sense from a short-term shareholder value perspective to vertically integrate into bottling.
Regardless of which explanation better fits the circumstances, it is clear that Coke and
Pepsi would only obtain true long-term value from these acquisitions if the bottling
industry were to further consolidate to the point that concentrate producers would no
longer be able to profit from the strategic asymmetries of the market. As of the date of
the HBS case study, this had not yet occurred and it was difficult to foresee whether or
not vertical integration would ever provide long-term value to the major players within
the soft drink industry.
Few Number of Buyers Many
Number
of Sellers
Sellers
Dominate
Buyers
Dominate
No One
Dominates
High
Trading
Risk
Few
Many