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

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  • Daniel Levy
  • Andrew Young

Abstract

We report that the price of a 6.5oz Coke was 5 cents 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 customers' "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 U.S. 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.

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Date of creation: Jun 2004
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Handle: RePEc:emo:wp2003:0405

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  1. Levy, Daniel & Dutta, Shantanu & Bergen, Mark, 2002. "Heterogeneity in Price Rigidity: Evidence from a Case Study Using Microlevel Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 197-220, February.
  2. Daniel Levy & Haipeng (Allen) Chang & Sourav Ray & Mark Bergen, 2004. "Asymmetric Price Adjustment in the Small: An Implication of Rational Inattention," Working Papers 04-23, Utrecht School of Economics.
  3. 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.
  4. David Genesove, 2003. "The Nominal Rigidity of Apartment Rents," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 844-853, November.
  5. Robert B. Barsky & Mark Bergen & Shantanu Dutta & Daniel Levy, 2003. "What Can the Price Gap between Branded and Private-Label Products Tell Us about Markups?," NBER Chapters, in: Scanner Data and Price Indexes, pages 165-228 National Bureau of Economic Research, Inc.
  6. 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.
  7. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-58, September.
  8. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Scanner Data and Price Indexes," NBER Books, National Bureau of Economic Research, Inc, number feen03-1, May.
  9. 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.
  10. Eden, Benjamin, 1993. "Inflation and Price Adjustment: An Analysis of Micro Data," Working Papers 94-13, University of Iowa, Department of Economics, revised 1994.
  11. 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.
  12. 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.
  13. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
  14. 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.
  15. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics 0505012, EconWPA.
  16. Dean Croushore & Tom Stark, 2002. "Forecasting coin demand," Working Papers 02-15, Federal Reserve Bank of Philadelphia.
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