Soft Drink Market In The United States

Economies of scale can be defined as the benefits that a firm obtains from the large-scale production reduced cost and increased profit. Sunk cost refers to the startup costs that a firm incurs when entering the market. Moreover, my research will discuss the significant barriers to soft drink business entry in the United States, which are economies of scale and sunk costs. Additionally, it will also look at how these restrictions have affected the soft drink market in the United States.
Economies of Scale
The notion of economies of scale refers to the advantages that a particular company gains due to its reduced cost of production and increased total output. It is one of the barriers to the industry because a new firm that wishes to join the market must enter on a large scale to keep up with the competition. This forms part of the …show more content…
Coca Cola has over 50 brands with more than 10 of these brands generating billions of dollars of revenue. The share capital of these two companies is 70% of the soft drink market in the USA. The dominance of the two companies is the result of large economies of scale since they have extensive bottling and distribution power. For example, Coca Cola Company has three independent bottler companies, namely Coca Cola Bottling Company Consolidated, Coca-Cola Bottling Company United, and Swire Coca-Coca USA. With these economies of scale, the two companies can reduce their total costs and expand their output. Furthermore, this means that an interested market entrant or small firms are not able to keep up with the pace because of the inefficiency since their total costs tend to be greater than those of large companies. Consequently, this results in the exit of the smaller firms from the market and prevents potential competitors from entering the market (Deichert, Ellenbecker, Pesarchick, Klehr, & Ziegler,