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

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  • Levy, Daniel
  • Young, Andrew

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.

Suggested Citation

  • Levy, Daniel & Young, Andrew, 2004. "The Real Thing: Nominal Price Rigidity of the Nickel Coke, 1886–1959," MPRA Paper 1046, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:1046
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    Cited by:

    1. Aysoy, Cem & Aysoy, Cevriye & Tumen, Semih, 2014. "Quantifying and explaining stickiness in housing rents: A Turkish case study with micro-level data," Journal of Housing Economics, Elsevier, vol. 25(C), pages 62-74.
    2. Itai Ater & Oren Rigbi, 2015. "Price control and advertising in franchising chains," Strategic Management Journal, Wiley Blackwell, vol. 36(1), pages 148-158, January.
    3. Mark Bergen & Daniel Levy & Sourav Ray & Paul H. Rubin & Benjamin Zeliger, 2008. "When Little Things Mean a Lot: On the Inefficiency of Item-Pricing Laws," Journal of Law and Economics, University of Chicago Press, vol. 51(2), pages 209-250, May.
    4. Daniel Levy & Dongwon Lee & Haipeng (Allan) Chen & Robert J. Kauffman & Mark Bergen, 2011. "Price Points and Price Rigidity," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1417-1431, November.
    5. Avichai Snir & Daniel Levy & Alex Gotler & Haipeng (Allan) Chen, 2012. "Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity," Working Paper series 69_12, Rimini Centre for Economic Analysis.
    6. Andrew T. Young & Daniel Levy, 2014. "Explicit Evidence of an Implicit Contract," Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(4), pages 804-832.
    7. Levy, Daniel & Snir, Avichai, 2017. "Potterian Economics," MPRA Paper 76344, University Library of Munich, Germany.
    8. Daniel Levy & Avichai Snir, 2013. "Shrinking Goods," Emory Economics 1303, Department of Economics, Emory University (Atlanta).
    9. Chen, Haipeng (Allan) & Levy, Daniel & Ray, Sourav & Bergen, Mark, 2008. "Asymmetric price adjustment in the small," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 728-737, May.
    10. Levy, Daniel, 2007. "Price adjustment under the table: Evidence on efficiency-enhancing corruption," European Journal of Political Economy, Elsevier, vol. 23(2), pages 423-447, June.
    11. Eckard, E. Woodrow, 2007. "Retail price concentration, transaction costs, and price flexibility circa 1900," Explorations in Economic History, Elsevier, vol. 44(1), pages 131-153, January.
    12. Knotek II, Edward S., 2008. "Convenient prices, currency, and nominal rigidity: Theory with evidence from newspaper prices," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1303-1316, October.
    13. Gregory de Walque & Frank Smets & Rafael Wouters, 2006. "Firm-Specific Production Factors in a DSGE Model with Taylor Price Setting," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
    14. Edward S. Knotek, 2011. "Convenient Prices and Price Rigidity: Cross-Sectional Evidence," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 1076-1086, August.
    15. John C. Driscoll & Ruth Judson, 2013. "Sticky deposit rates," Finance and Economics Discussion Series 2013-80, Board of Governors of the Federal Reserve System (U.S.).
    16. Alvarez Luis J. & Burriel Pablo, 2010. "Is a Calvo Price Setting Model Consistent with Individual Price Data?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-25, May.
    17. Renner, Elke & Tyran, Jean-Robert, 2004. "Price rigidity in customer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 575-593, December.
    18. Alan Kackmeister, 2007. "Yesterday's Bad Times Are Today's Good Old Times: Retail Price Changes Are More Frequent Today Than in the 1890s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1987-2020, December.
    19. Andrew T. Young & Daniel Levy, 2014. "Explicit Evidence of an Implicit Contract," Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(4), pages 804-832.
    20. Alex Ho, Wai-Yip & Yetman, James, 2008. "The long-run output-inflation trade-off with menu costs," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 261-273, December.
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    More about this item

    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;

    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; Industrial Structure; Growth; 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; Personnel Economics - - 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; Personnel Economics - - Business Administration - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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