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Strategy and Transaction Costs: The Organization of Distribution in the Carbonated Soft Drink Industry

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  • Muris, Timothy J
  • Scheffman, David T
  • Spiller, Pablo T

Abstract

This paper analyzes the ongoing transformation of the soft drink distribution of Coca-Cola and Pepsi-Cola from systems of independent bottlers to captive bottling subsidiaries. A transaction cost-based theory is developed.to explain this restructuring. It is postulated that changes in the external environment and the resulting changes in the strategies of Coca-Cola and Pepsi-Cola raised the costs of transacting between them and their independent bottlers. Two types of empirical tests are presented. One exploits the difference in the distribution of Coca-Cola and Pepsi-Cola in the fountain channel. The other consists of statistical analyses of the competitive effects of the move toward captive distribution. Both types of tests support the basic hypotheses. Copyright 1992 by MIT Press.

Suggested Citation

  • Muris, Timothy J & Scheffman, David T & Spiller, Pablo T, 1992. "Strategy and Transaction Costs: The Organization of Distribution in the Carbonated Soft Drink Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 83-128, Spring.
  • Handle: RePEc:bla:jemstr:v:1:y:1992:i:1:p:83-128
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    Cited by:

    1. Michael, Steven C., 2007. "Transaction cost entrepreneurship," Journal of Business Venturing, Elsevier, vol. 22(3), pages 412-426, May.
    2. Irmen, Andreas, 1998. " Precommitment in Competing Vertical Chains," Journal of Economic Surveys, Wiley Blackwell, vol. 12(4), pages 333-359, September.
    3. Traversac, Jean-Baptiste & Rousset, Sylvain & Perrier-Cornet, Philippe, 2011. "Farm resources, transaction costs and forward integration in agriculture: Evidence from French wine producers," Food Policy, Elsevier, vol. 36(6), pages 839-847.
    4. Versaevel, Bruno, 2002. "Co-ordination costs and vertical integration in production franchise networks: a common agency model," Research in Economics, Elsevier, vol. 56(2), pages 157-186, June.
    5. Davide Vannoni, 1999. "Empirical Studies of Vertical Integration: the Transaction Cost Orthodoxy," CERIS Working Paper 199903, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
    6. Josef Windsperger, 2003. "Complementarities and Substitutabilities in Franchise Contracting: Some Results from the German Franchise Sector," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 7(3), pages 291-313, September.
    7. Nickerson, Jack A. & Vanden Bergh, Richard, 1999. "Economizing in a context of strategizing: governance mode choice in Cournot competition," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 1-15, September.
    8. Frank Mathewson & Ignatius J. Horstmann, 2004. "Coordination, Specialization and Incentives: An Equilibrium Model of Firm Boundaries," Econometric Society 2004 North American Winter Meetings 266, Econometric Society.
    9. David Dranove & Cory Capps & Leemore Dafny, 2009. "A Competitive Process for Procuring Health Services: A Review of Principles with an Application to Cataract Services," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 2(5), December.
    10. Francine Lafontaine & Margaret Slade, 2007. "Vertical Integration and Firm Boundaries: The Evidence," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 629-685, September.
    11. Enghin Atalay & Ali Horta?su & Chad Syverson, 2014. "Vertical Integration and Input Flows," American Economic Review, American Economic Association, vol. 104(4), pages 1120-1148, April.
    12. Abiru, Masahiro & Nahata, Babu & Raychaudhuri, Subhashis & Waterson, Michael, 1998. "Equilibrium structures in vertical oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 37(4), pages 463-480, December.
    13. Steven Globerman & Aidan Vining, 2004. "The Outsourcing Decision: A Strategic Framework," International Trade 0404007, University Library of Munich, Germany.
    14. Catherine Matraves, 2002. "European Integration and Market Structure in the Soft Drinks Industry," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(3), pages 295-310.
    15. Yue Maggie Zhou & Xiang Wan, 2017. "Product variety and vertical integration," Strategic Management Journal, Wiley Blackwell, vol. 38(5), pages 1134-1150, May.
    16. Klein, Benjamin, 1995. "The economics of franchise contracts," Journal of Corporate Finance, Elsevier, vol. 2(1-2), pages 9-37, October.
    17. Francine Lafontaine & Margaret E. Slade, 1998. "Incentive Contracting and the Franchise Decision," NBER Working Papers 6544, National Bureau of Economic Research, Inc.
    18. Francine Lafontaine & Kathryn L. Shaw, 2005. "Targeting Managerial Control: Evidence from Franchising," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 131-150, Spring.
    19. Josef Windsperger, 2002. "The Structure of Ownership Rights in Franchising: An Incomplete Contracting View," European Journal of Law and Economics, Springer, vol. 13(2), pages 129-142, March.
    20. Josef Windsperger, 2013. "The governance of franchising networks," Chapters, in: Anna Grandori (ed.), Handbook of Economic Organization, chapter 27, Edward Elgar Publishing.
    21. Arturs Kalnins, 2017. "Pricing Variation Within Dual-Distribution Chains: The Different Implications of Externalities and Signaling for High- and Low-Quality Brands," Management Science, INFORMS, vol. 63(1), pages 139-152, January.
    22. Todorova, Tamara, 2010. "Vertical Integration in High-Transaction Cost Sectors: The Case of the Bulgarian Pharmaceutical Industry," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 127-138.
    23. Kacker, Manish & Perrigot, Rozenn, 2016. "Retailer use of a professional social media network: Insights from franchising," Journal of Retailing and Consumer Services, Elsevier, vol. 30(C), pages 222-233.
    24. Catherine Matraves, 1999. "Market Integration and Market Structure in the European Soft Drinks Industry: Always Coca-Cola?," CIG Working Papers FS IV 99-13, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).

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