Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/206840 
Year of Publication: 
2014
Citation: 
[Journal:] The Journal of Law, Economics, and Organization [ISSN:] 1465-7341 [Volume:] 30 [Issue:] 4 [Publisher:] Oxford University Press [Place:] Oxford [Year:] 2014 [Pages:] 804-832
Publisher: 
Oxford University Press, Oxford
Abstract: 
We offer the first direct evidence of an implicit contract in a goods market. The evidence comes from the market for Coca-Cola. Since implicit contracts are unobservable, we adopt a narrative approach to demonstrate that the Coca-Cola Company left a written evidence of the implicit contract with its customers—a very explicit form of an implicit contract. The implicit contract promised a 6.5oz Coca-Cola of a constant quality, the “secret formula,” at a constant price, 5¢. We show that Coca-Cola attributes and market structure made it a suitable candidate for an implicit contract. Focusing on the observable implications of such an implicit contract, we offer evidence of the Company both acknowledging and acting on this implicit contract, which was valued by consumers. During a period of 74 years, we find evidence of only a single case of true quality change. We demonstrate that the company perceived itself as vulnerable to consumer backlash by reneging on the pledge, and conclude that the perceived costs of breaking the implicit contract were large.
Subjects: 
Implicit Contract
Explicit Contract
Invisible Handshake
Customer Market
Long-Term Relationship
Price Rigidity
Sticky Prices
Price Adjustment
Quality Rigidity
Quality Adjustment
Nickel Coke
Coca-Cola
Secret Formula
Real Thing
JEL: 
E12
E31
K00
K12
K22
K23
L14
L16
L66
M21
M31
N80
A14
Published Version’s DOI: 
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)
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