Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/259343 
Year of Publication: 
2004
Series/Report no.: 
Working Paper No. 2004-02
Publisher: 
Bar-Ilan University, Department of Economics, Ramat-Gan
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.
Subjects: 
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: 
D40
E12
E31
L10
L11
L16
M10
M31
N1
N8
Document Type: 
Working Paper

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