I have often wondered while at a convenience store why a bottle of soda is either the same price or sometimes even less than a bottle of water. Considering soda is simply water with many things added into it, this pricing cannot reflect the true cost of production. The bottling is also extremely similar. With soda being something that people can become somewhat addicted to, one would assume that the demand of soda would be higher than that of water, especially in the US. To me, the only plausible explanation for this price discrimination is that soda companies want their customers to buy the soda because it could lead to more sales with people becoming dependent on the large amounts of sugar and caffeine. Water, although healthier and with many less ingredients, doesn’t have the same dependent producing results as its overpriced counterpart.
I would have to agree with your reasoning why soda is less expensive. The cost to produce a can/bottle of soda and the profit the corporations get on each can/bottle is already a very high ROI. So by not charging less than the amount of a bottle of water, the companies are still making a large profit. They are also maintaining their customer base, if not increasing their customer base because of the advantage of having a cheaper product. Soda is also a differentiated product when compared to water, so they might also have an advantage with the cheaper price when it comes to a certain demographic.
Interestingly enough, bottled water sales have been increasing since the 1980s and exceeded the consumption of soda in the mid-2000s (http://www.nytimes.com/2013/10/26/business/bottled-water-sales-rising-as-soda-ebbs.html?_r=0). Because of the laws of supply and demand, bottled water manufacturing companies can raise their price and still have a high demand in their product.
I wonder if the maybe the pricing doesn’t reflect the elasticity of demand for water vs soda? Usually when I go into a convenience store, I’ve already made up my mind as to whether I’m there to purchase a bottle of water (going to a summer ball game and am looking to stay hydrated), or to purchase soda (just looking for something sweet to go with my Doritos). If hydration is my primary goal, maybe I’m less responsive to higher prices so companies know they can charge me more for water? Maybe this elasticity is reflected in the price of hydration products like Gatorade or Smart Water?
I think your reasoning of why soda is less expensive than water can be applied to many other food products. For instance when you go to the store often times fruit is pretty expensive. You could get a mixed fruit cup for 5 dollars or you could get 5 candy bars. College kids think in these terms a lot. A friend of mine is constantly judging prices in McChickens. I was buying a vegetable tray for a get together and it was around 11 dollars and his first response was, “you know you could get 11 McChickens instead?”. It is sad that healthier food and drink items are more expensive. Especially water and soda. To add to the water argument i think it is completely ridiculous that certain people think different water brands taste different. I agree that they do taste slightly different to a point. But I’m not about to pay 5 dollars for Smartwater when I can buy the Kirkland brand for 2 dollars. These companies do a very good job and tricking people into thinking that they need the more expensive brand. It’s water, it can only be so good!
I think it makes economic sense for soda companies to undercut water prices, as water bottles are considered a cheaper (and often inferior) good. That being said, some of these water companies are owned by soda companies. For example, Dasani is owned by Coca-Cola and Aquafina is owned by Pepsi. How does one explain them undercutting their water brands with their soda prices? Pepsi even admits they are bottling tap water for an astronomical profit.
http://money.cnn.com/2007/07/27/news/companies/pepsi_coke/
This makes me wonder if they are trying to cannibalize their water line with their soda lines. The theory behind this is the the demand for bottled water may be lower and more elastic and by keeping high water prices, soda looks comparatively cheaper.