In 1931, the Pepsi-Cola Company was in bankruptcy for the second time in 12 years. The president of Pepsi, Charles G. Guth, even tried to sell the company to Coca-Cola, but Coke wanted no part of the deal.
In order to reduce costs, Guth purchased a large supply of recycled 12-ounce beer bottles. At that time, both Pepsi and Coke were sold in six-ounce bottles. Initially, Pepsi priced the bottles at 10 cents, twice the amount of the original six-ounce bottles, but with little success. Then, however, Guth had the brilliant idea of selling the 12-ounce bottles of Pepsi at the same price as the six-ounce bottles of Coke. Sales took off, and by 1934, Pepsi was out of bankruptcy and soon making a very nice profit.
Pepsis pricing decision in 1931 was clearly crucial to the life of the firm. The primary background necessary for understanding the pricing decision is a good understanding of the law of demand
