| Firm | Brand | Size | Market share of firm | Market share of product | Price (£) |
|---|---|---|---|---|---|
| Monster | All Monster | 42.5% | |||
| Regular Energy | 500 ml | 24.5% | 1.49 | ||
| Ultra Zero | 500 ml | 12.0% | 1.59 | ||
| Mango Loco | 500 ml | 6.0% | 1.65 | ||
| Red Bull | All Red Bull | 38.2% | |||
| Red Bull Original | 250 ml | 28.0% | 1.35 | ||
| Red Bull Sugarfree | 250 ml | 10.2% | 1.35 | ||
| Suntory | Lucozade Energy | 380 ml | 11.2% | 1.10 | |
| Other | Other | 8.1% |
The effects of a total ban on the advertising of high-caffeine energy drinks
Energy drinks containing over 150mg of caffeine per litre tend to be sold in highly concentrated markets. Tough new rules banning online and TV advertisements for these products come into effect as a means to reduce youth consumption. The rules apply to media targeted at under-18s and will mean a major reduction in the number of promotions teenagers see for energy drinks on social media, during live sports streaming, and on catch-up television.
There are three main factors that will determine the effectiveness of the intervention: first, whether advertising acts to expand the overall market size or simply to steal rivals' market share. Secondly, how firms in the market adapt their behavior in response to the ban. Thirdly, what substitute products consumers turn to if they opt out of the energy drink market.
Results from a recent market survey in the UK suggest that the total quantity of energy drinks sold would fall by around 12% in the presence of an advertising ban, or by only 8% if firms respond with price cuts, since the ban acts to make the market more competitive and firms respond to the ban by, on average, lowering their prices.
The survey showed that following a ban, consumers are more likely to switch to other sugary carbonated soft drinks than to water or fruit juices, which (in addition to the pricing response of firms) acts to partially offset any public health gains from the policy.
In Extract A, it is suggested that some firms may respond to the advertising ban by cutting the prices of their products.
Using game theory and the information provided in Figure 1 and Extract A, discuss the effects on firms of cutting prices in an oligopolistic market.
