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

Bar-Ilan University Economics Working Paper No. 2004

47 Pages Posted: 6 Feb 2004  

Daniel Levy

Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis

Andrew Young

Emory University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 4, 2004

Abstract

We report that the price of a 6.5 ounce Coke was 5 cents 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.

Keywords: Price rigidity, sticky prices, cost of adjustment, cost of price adjustment, retail price maintenance, Coca-Cola, Coke, the Real Thing, Pepsi, Nickel Coke, monetary transacation technology constraint, indivisibility constraint, inconvenience cost, Nickel and Dime Stores

JEL Classification: E12,E31,L16,L10,L11,D40,M10,M31,N1,N8

Suggested Citation

Levy, Daniel and Young, Andrew, 'The Real Thing': Nominal Price Rigidity of the Nickel Coke, 1886-1959 (February 4, 2004). Bar-Ilan University Economics Working Paper Series. Available at SSRN: https://ssrn.com/abstract=389665 or http://dx.doi.org/10.2139/ssrn.389665

Daniel Levy (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 5290002
Israel
+972 3 531-8345 (Phone)
+972 3 738-4034 (Fax)

HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )

1602 Fishburne Drive, Suite 306
Rich Building
Atlanta, GA 30322-0001
United States

HOME PAGE: http://economics.emory.edu/home/people/faculty/Levydaniel.html

Rimini Center for Economic Analysis ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

HOME PAGE: http://www.rcfea.org/

Andrew T. Young

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States
404-727-1022 (Phone)

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