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

  • Daniel Levy

    (Bar-Ilan & Emory)

  • Andrew Young

    (Emory)

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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File URL: http://econwpa.repec.org/eps/mac/papers/0402/0402013.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0402013.

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Length: 47 pages
Date of creation: 05 Feb 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0402013
Note: Type of Document - pdf; prepared on Win 98; to print on Any printer; pages: 47 ; figures: Color Figures are included (they look fine on non-color printers as well)
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  13. Daniel Levy & Haipeng Allan Chen & Sourav Ray & Mark Bergen, 2004. "Asymmetric Price Adjustment "in the Small:" An Implication of Rational Inattention," Macroeconomics 0407012, EconWPA, revised 11 May 2005.
  14. Eden, Benjamin, 1993. "Inflation and Price Adjustment: An Analysis of Micro Data," Working Papers 94-13, University of Iowa, Department of Economics, revised 1994.
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  17. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Scanner Data and Price Indexes," NBER Books, National Bureau of Economic Research, Inc, number feen03-1, September.
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  19. 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.
  20. Ball, Laurence & Romer, David, 2003. " Inflation and the Informativeness of Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 177-96, April.
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