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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
1046.
Length: Date of creation: Aug 2004 Date of revision: Publication status: Published in Journal of Money, Credit and Banking Issue No. 4.Volume No. 36(2004): pp. 765-799 Handle: RePEc:pra:mprapa:1046
Find related papers by JEL classification: L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General N1 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian N8 - Economic History - - Micro-Business History M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms M10 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - General D40 - Microeconomics - - Market Structure and Pricing - - - General E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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.
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