An executive for Central Bottling Company, the Israeli Coca Cola bottler, said the company didn’t lower prices for its soft drinks because it would cause its market share to grow at the expense of the competition and open it up to accusations of antitrust violations.
“Suppose I lower prices below the price for Pepsi. What happens to Pepsi and RC is only one thing – they will disappear, and then I will be sued for predatory pricing,” Joav-Asher Nachshon, vice president for Coca Cola Israel told a court in deliberations over a class action suit that were released over the weekend.
Plaintiffs led by attorneys Ranat Gersht, Shahar Ben-Meir and Shinhar Yaacov, are seeking 450 million shekels ($128 million) from Central Bottling for excessive prices. They claim Central Bottling exploits its monopoly status in the soft drinks market in violation of antitrust rules.
Nachshon was responding to a question from Judge Ofer Grosskopf of the Central District Court. In response, Grosskopf challenged his answer, saying: “You don’t lower [prices] but there’s a good reason that you don’t. If you could remove your competition you would happily do it. You don’t lower prices because it would hurt profitability in the end. You prefer to retain 88% of the market at the price level you have today.”
To that, Nachshon said he agreed with the judge’s remarks, except for the matter of competition. “We are very much in competition,” he said. “We’re constantly competing.”
The court protocols also showed that two consultants retained by Central Bottling – Profs. Yossi Spiegel and Chaim Fershtman of Tel Aviv University – issued an opinion that Israeli cola prices are not excessive, based on a comparison of prices in their countries. However, they did not base their opinion on Central Bottling’s actual costs.
The plaintiffs estimate that the cost of producing a 1.5-liter bottle of non-diet Coke is at most 3.15 shekels against a list price to retailers of 5.60 shekels, a margin of 80%. They assert that production costs could be much lower. Central Bottling refused to provide them with production costs and their estimates are those for rivals Tempo and Jafora Tabori.
Nachshon denied the company priced its products based on its lock on the market. “I don’t know how to measure that. I don’t know why that’s relevant whether or not we’re a monopoly,” he said. It’s not exploitation. We don’t sit around and say, ‘Wait, let’s take advantage of the consumer as much as we can.’ We find the optimal [price] point.”
“I think we have shown that our prices are similar to rest of the world, so there is nothing scandalous here, because Coca-Cola is raising these prices all over the world,” he added. “You see that the price gap between us and Pepsi was not created because we raised prices, but because they lowered prices.”Grosskopf, however, commented that the lower prices for rival products, which was as much as 60%, reflected a fair profit relative to production costs.
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