How you can convince your colleagues that introducing the new soft drink is the most profitable strategy by explaining the reasoning and theoretical analysis?

The question is incomplete. The complete question is :

Coca-Cola and PepsiCo are the leading competitors in the market for cola products. In 1960 Coca-Cola introduced Sprite, which today is the worldwide leader in the lemon-lime soft drink market and ranks fourth among all soft drinks worldwide. Prior to 1999, PepsiCo did not have a product that competed directly against Sprite and had to decide whether to introduce such a soft drink. By not introducing a lemon-lime drink, PepsiCo would continue to earn a $200 million profit and Coca Cola would continue to earn a $300 million profit.

Suppose that by introducing a new lemon-line soft drink, one of two possible strategies could be pursued : (1) PepsiCo could trigger a price war with Coca-Cola in both lemon-lime and cola markets or (2) Coca-Cola could acquiesce and each firm maintains its current 50/50 split of the cola market and split the lemon-lime market 70/30 in favor of Coca-Cola. If Pepsi introduced a lemon-lime drink and a price war resulted, both companies would earn profits of $100 million. Alternatively, Coca-Cola and PepsiCo would earn $275 million and $227 million, respectively, if PepsiCo introduce a lemon-lime drink and Coca-Cola acquiesced and split the markets as listed above.

Diagram this situation using the extensive or tree-form of a game.

How you can convince your colleagues that introducing the new soft drink is the most profitable strategy by explaining the reasoning and theoretical analysis?

Solution :

The game can be represented in a way that is shown in the file attached below.

The if Pepsi introduces the new product is to earn million rather than starting a price war with Coca-Cola and earn only . Thus, while might use the strategy to threaten by starting a price war in the attempt of keeping out of the market, the threat will not be credible, so the best option is to introduce the new soft drink .

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