We report that the price of a 6.5oz Coke was 5¢ from 1886 until about 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. 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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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number
0405.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Dennis W. Carlton, 1987.
"The Rigidity of Prices,"
NBER Working Papers
1813, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Robert C. Feenstra & Matthew D. Shapiro, 2003.
"Scanner Data and Price Indexes,"
NBER Books,
National Bureau of Economic Research, Inc, number feen03-1, September.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)