EconPapers    
Economics at your fingertips  
 

Explicit Evidence of an Implicit Contract

Andrew Young () and Daniel Levy ()

No 2013-06, Working Papers from Bar-Ilan University, Department of Economics

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.

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: E12 E31 K00 K12 K22 K23 L14 L16 L66 M21 M31 N80 A14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2013-10
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://econ.biu.ac.il/files/economics/working-papers/2013-06.pdf Working paper (application/pdf)

Related works:
Journal Article: Explicit Evidence of an Implicit Contract (2014) Downloads
Working Paper: Explicit Evidence of an Implicit Contract (2013) Downloads
Working Paper: Explicit Evidence of an Implicit Contract (2013) Downloads
Working Paper: Explicit Evidence of an Implicit Contract (2013) Downloads
Working Paper: Explicit Evidence of an Implicit Contract (2013) Downloads
Working Paper: Explicit Evidence on an Implicit Contract (2011) Downloads
Working Paper: Explicit Evidence on an Implicit Contract (2010) Downloads
Working Paper: Explicit Evidence on an Implicit Contract (2006) Downloads
Working Paper: Explicit Evidence on an Implicit Contract (2006) Downloads
Working Paper: Explicit Evidence on an Implicit Contract (2005) Downloads
Working Paper: Explicit Evidence on an Implicit Contract (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:biu:wpaper:2013-06

Access Statistics for this paper

More papers in Working Papers from Bar-Ilan University, Department of Economics Contact information at EDIRC.
Series data maintained by Department of Economics ().

 
Page updated 2017-11-20
Handle: RePEc:biu:wpaper:2013-06