Bittersweet

Question 1:

Brief Background

In 1987, the main Aspartame market barrier to entry, Nutrasweet’s (NS, owned by Mosanto) patent on the Aspartame market in Europe and Canada, runs out allowing for this Monopoly to gain more entrants into the market and create a competitive environment. One key competitor who has their eye on this is The Holland Sweetener Company (HSC). Nutrasweet were successful in extending this patent in the US until December 1992, their “blend” patent was also extended until November 1996. HSC is now assessing the market situation and comparing the possible strategies that NS could employ to them joining the field. NS has strong relationships with the major soft drink companies, Pepsi and Coke, which are bound by contracts and makes them the exclusive supplier.

Hypothesis Nutrasweet Accommodating Response in 1987:

It is assumed that HSC has a higher marginal cost then NS (even though they claimed to have a ‘less costly and more flexible production processes), this would result in higher average costs for the first few years of starting up operation. HSC entering the market doesn't pose much of a threat to NS

Looking at the future potential European and Canadian markets, it is projected (Exp 1) that the annuals sales from these two Aspartame markets will reach 1,800 tons in 1991. Though these markets are huge growth markets (expecting to grow 70% between 1986 and 1991), they still would only account for less then 20% of the over all global market (US attaining almost 80%). Since NS still have a patent on the US market until 1992 they would account for this 80%, so they can afford to accommodate and let HSC into the European and Canadian markets.

Not only would NS have this projected 80% market share as income for another 5 years, NS also have the extended patent for the ‘blend’ product which is carried out until 1996. Therefore NS would still acquire at least a significant portion of the market share up until 5 years after HSC have...