Innovative Price Adjustment

I'm presently revising a paper (written with Daniel Levy) that argues that an implicit contract is important for understanding why 6.5 ounces of Coca-Cola - in the bottle or at the fountain - was exactly 5 cents from 1886 into the 1950s. (We also have a JMCB paper on the subject.) Going through some of our documents gathered from the Coca-Cola archives in Atlanta, I came upon this absolutely brilliant - though ultimately ill-fated - attempt to deal with the fact that, in 1951, inflation and the nickel Coke were not going to work out together. The following was developed by one Eugene Kelley of the Coca-Cola Company and entitled the "Single Coin Plan".

Coin operated bottle coolers for Coca-Cola were originally designed to sell a bottle of Coca-Cola for a nickel. Due to increased costs, to our regret, we can no longer sell a bottle of Coca-Cola for 5 [cents]. Coin mechanisms that operate with a nickel and a penny (6 [cents] total) are much more complicated and less satisfactory to you than mechanisms that operate with a nickel, so instead of offering one 'Coke' for 6 [cents] the coin cooler offers 8 'Cokes' for 45 [cents] which is only 5.625 [cents] per bottle. This is accomplished by adjusting the coin cooler to deliver either an empty bottle or no bottle at all for one nickel in every nine deposited. This absence of 'Coke' is called an official blank. Please be warned that, if you fail to deposit nine nickels, at worst you will strike blank and have to deposit another nickel for your 'Coke.' At best you will miss the blank (8 times out of 9) and your 'Coke' will cost only a nickel, but as stated, your average 'Coke' sells for 5.625 [cents] per bottle[.]

Prices sometimes are rigid. In this case a nominal price was rigid for many decades. One concern about adjusting the price in 1951 was that doing so would impose additional transaction costs on consumers by forcing them to use multiple coins rather than just the nickel. This may seem trivial, but the management of one of the most successful American corporations thought it was important enough to entertain a scheme like the above.