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Coke Zero
Coke Zero
The problem is that the consumer in the diagram above views Coke Zero and Coke No Sugar as
substitutes, maybe even close substitutes, but not perfect substitutes. Perfect substitutes are goods
that are, in the consumer's view, identical. They don't care which of them they have. An example is
red M&Ms and blue M&Ms. The consumer probably doesn't care at all about the difference in the
colour of M&Ms (unless they're Van Halen); they only care about the total number of M&Ms. With
perfect substitutes, the indifference curves become straight lines. In the case of the consumer in the
diagram above, the indifference curve would be identical to the budget constraint, and the consumer
would be equally happy with any bundle of goods on the budget constraint, including both E0 and E1.
In other words, the consumer would be perfectly happy to switch from only drinking Coke Zero to only
drinking Coke No Sugar.
So, Coke's job is to convince consumers that Coke Zero and Coke No Sugar are perfect substitutes.
That seems to me to be a difficult task, since if the two products were identical, why replace the old
one with the new one at all? And many consumers probably feel the same way. So Coke is probably
left in the uncomfortable position of having to make its customers a little bit less happy, if it really
wants to get rid of Coke Zero.
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[*] In this very simple model, we are ignoring that the consumer can buy other products as well as
Coke Zero and/or Coke No Sugar. You can think of it as assuming that consumers have a fixed
budget for those two varieties of Coke.