You're the strategy director of a beverage group in Lima. You want to grow, and you have two options within the same chain: invest more in the concentrate —where two players compete with brands and IP— or in bottling and distribution —where dozens compete and it moves six times more revenue—. The board looks at revenue and pushes toward bottling. You suspect the profit lives in the other layer.
The situation
A layer's market structure —how many compete and with what power— determines its profitability far more than the product does. The concentrate is a duopoly: two brands with intellectual property, extremely high barriers, and enormous margins. Bottling is nearly perfect competition: many players, an interchangeable product, razor-thin margins. It's the same drink, opposite layers. It's the lesson of Cola Wars: the money was in the concentrate, not in bottling.
Here's the trap that tempts the board. Bottling moves six times more revenue, so it looks like the big business. But with 3% margins, its profit is smaller than the concentrate's, which earns 32% on a small revenue base. The right question isn't "where are the most sales?" but "which structure captures the profit?". In a competitive layer, revenue is high and profit evaporates; in a concentrated one, revenue is smaller but profit stays. Just as a cartel only earns while it restricts supply, a company only earns where the structure allows it.