I am visiting The University of Regina for the upcoming academic year. One interesting anomaly that I have noticed on campus involves the price of soft drinks from different vending machines.
My favourite soft drink, most of the time, is Coke Zero. In all the machines, it is priced at $2/591ml bottle, which seems a bit steep to me, but probably captures some locational market power from being on campus. A price of $2/bottle is enough to induce me to drink more water from drinking fountains and less Coke Zero, but that price seems likely to be a profit-maximizing price for Coke.... until you see competitive machines.
It turns out that Coke does not have a monopoly on campus at The University of Regina. There are machines that sell Pepsi products, too, and my second favourite soft drink (frequently my first choice, ceteris paribus, actually) is Diet Dr. Pepper, which is distributed by Pepsi. All the Pepsi products are sold in machines on this campus for only $1.75. Needless to say (for an economist?), the price difference is enough to
- induce me to drink more Diet Dr. Pepper than Coke Zero when buying soft drinks from the machines; in fact I probably won't drink much, if any, Coke Zero here now that I have this information in hand, and
- induce me to drink more soft drinks than water.
This second effect has two parts to it. First, I drink more soft drinks simply because of the Law of Demand: when the price goes down, the quantity demanded goes up.
But the second reason is more revealing of my own to-be-laughed-at behaviours. The very fact that Diet Dr. Pepper is cheaper than Coke Zero makes me want to drink more soft drinks just to take advantage of the apparent bargain. This doesn't really make much sense to me. It's not as if drinking more soft drinks now will save me any quarters relative to drinking water.
What really puzzles me, though, is why the prices are different and how long this price differential will last. Are the drinkers of Coca-Cola products such die-hard fans of the products that they gladly pay the 25-cent difference? I can imagine there are some for whom the price elasticity of demand is pretty small, but there must be lots who'd be happy to switch to Pepsi products to save the 25 cents.
One possible explanation is that the Coke machines all seem to be in more heavily traveled locations, while the Pepsi machines seem to be is slightly more out-of-the-way locations. I'm not sure this is correct, but if so, Coke might be able to capture some of the locational advantage. However, this explanation seems to be stretching things a bit. Or maybe during the school year, the line-ups at the Pepsi machines are so long that people, in essence, pay a quarter to jump the queue by using the Coke machines.
Maybe my tastes in soft drinks differ from those of other people, but I wonder how long this price differential can persist. I am surprised that it exists at all, and so understandably I doubt it will last long.
Or, I wonder, is there some bureaucratic explanation for the difference? I also wonder what the comparative sales are for the two distributors and what the time trend has been, given these prices.