Explicit Evidence of an Implicit Contract

Andrew Young () and Daniel Levy ()

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We offer the first direct evidence of an implicit contract in a goods market. The evidence comes from the market for Coca-Cola. We demonstrate that the Coca-Cola Company left a written evidence of its implicit contract with its consumers—a very explicit form of an implicit contract. The contract promised a 5¢ price and adherence to the "Secret Formula." Because implicit contracts are unobservable, we adopt a narrative approach. Analyzing a large number of historical documents, we offer evidence of the Company both acknowledging and acting on this implicit contract. We explore quality as a margin of adjustment available to Coca-Cola. The implicit contract included a promise not only of a constant price but also a constant quality (the "real thing"). During a period of over 70 years, we find evidence of only a single case of true quality change. We demonstrate that the perceived costs of breaking the implicit contract were large.

Keywords: 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 (search for similar items in EconPapers)
JEL-codes: A14 E12 E31 K00 K12 K22 K23 L14 L16 L66 M21 M31 N80 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
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Published in Journal of of Law, Economics, and Organization, ewt013, 2013

Downloads: (external link)
http://www.rcea.org/RePEc/pdf/wp49_13.pdf (application/pdf)

Related works:
Journal Article: Explicit Evidence of an Implicit Contract (2014)
Journal Article: Explicit Evidence of an Implicit Contract (2014)
Working Paper: Explicit Evidence of an Implicit Contract (2014)
Working Paper: Explicit Evidence of an Implicit Contract (2013)
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Working Paper: Explicit Evidence on an Implicit Contract (2011)
Working Paper: Explicit Evidence on an Implicit Contract (2006)
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Working Paper: Explicit Evidence on an Implicit Contract (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:49_13

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