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"The Real Thing:" Nominal Price Rigidity of the Nickel Coke, 1886-1959

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  • Daniel Levy

    ()
    (Bar-Ilan University and Emory University)

  • Andrew T. Young

    (Emory University)

Abstract

We report that the price of a 6.5oz Coke was 5¢ from 1886 until 1959. Thus, we are documenting a nominal price rigidity that lasted more than 70 years! The case of Coca-Cola is particularly interesting because during the 70-year period there were substantial changes in the soft drink industry as well as two World Wars, the Great Depression, and numerous regulatory interventions and lawsuits, which led to substantial changes in the Coca-Cola market conditions. The nickel price of Coke, nevertheless, remained unchanged. We find that this unusual rigidity is best explained by (1) a contract between the Company and its parent bottlers that encouraged retail price maintenance, (2) a single-coin vending machine technology, which limited the Company's price adjustment options due to limited availability and unreliability of the existing flexible price adjustment technologies, and (3) a single-coin monetary transaction technology, which limited the Company's price adjustment options due to the customer "inconvenience cost." We show that these price adjustment costs are of a different nature than the standard menu cost, and their estimates exceed the existing estimates by an order of magnitude. A possible broader relevance of the nickel Coke phenomenon is discussed in the context of Nickel and Dime Stores, which were popular in the US in the late 1800s and the early 1900s.

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Bibliographic Info

Paper provided by Department of Economics, Bar-Ilan University in its series Working Papers with number 2004-2.

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Date of creation: Feb 2004
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Handle: RePEc:biu:wpaper:2004-2

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Keywords: Sticky Prices; Cost of Adjustment; Menu Cost; Retail Price Maintenance; Single-Coin Vending Machine; Customer Inconvenience Cost; Coca-Cola; Coke; Nickel Coke; Pepsi; Nickel and Dime Stores;

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  1. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-58, September.
  2. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
  3. Robert Barsky & Mark Bergen & Shantanu Dutta & Daniel Levy, 2002. "What Can the Price Gap between Branded and Private Label Products Tell Us about Markups?," Working Papers 2002-02, Department of Economics, Bar-Ilan University.
  4. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  5. Jonathan L. Willis, 2000. "Estimation of adjustment costs in a model of state-dependent pricing," Research Working Paper RWP 00-07, Federal Reserve Bank of Kansas City.
  6. David Genesove, 2003. "The Nominal Rigidity of Apartment Rents," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 844-853, November.
  7. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
  8. Benjamin Eden, 2001. "Inflation and Price Adjustment: An Analysis of Microdata," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 607-636, July.
  9. Daniel Levy & Haipeng (Allan) Chen & Sourav Ray & Mark Bergen, 2004. "Asymmetric Price Adjustment in the Small: An Implication of Rational Inattention," Working Papers 2004-08, Department of Economics, Bar-Ilan University.
  10. Daniel Levy & Shantanu Dutta & Mark Bergen, 2002. "Heterogeneity in Price Rigidity: Evidence from a Case Study Using Micro-Level Data," Working Papers 2002-09, Department of Economics, Bar-Ilan University.
  11. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  12. Dean Croushore & Tom Stark, 2002. "Forecasting coin demand," Working Papers 02-15, Federal Reserve Bank of Philadelphia.
  13. Levy, Daniel, et al, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 791-825, August.
  14. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Scanner Data and Price Indexes," NBER Books, National Bureau of Economic Research, Inc, number feen03-1, July.
  15. Warner, Elizabeth J & Barsky, Robert B, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 321-52, May.
  16. Michael C. Davis & James D. Hamilton, 2003. "Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," NBER Working Papers 9741, National Bureau of Economic Research, Inc.
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