Explicit Evidence of an Implicit Contract

Andrew Young, Daniel Levy

Research output: Contribution to journalArticlepeer-review

Abstract

We offer the first direct evidence of an implicit contract in a goods market. The evidence we offer comes from the market for Coca-Cola. We demonstrate that the Coca-Cola Company left a substantial amount of written evidence of its implicit contract with its consumers—a very explicit form of an implicit contract. The contract represented the promise of a five cent (nominal) price and adherence to the “Secret Formula”. In general, the implicit nature of such contracts makes observation difficult. To overcome this difficulty, we adopt a narrative approach. Based on the analysis of a large number of historical documents obtained from the Coca-Cola Archives and other sources, we offer evidence of the Coca-Cola Company both acknowledging and acting on this implicit contract. We also make another unique contribution by exploring quality as a margin of adjustment available to Coca-Cola. The implicit contract included a promise not only of a constant nominal price but also a constant quality
Original languageEnglish
JournalJournal of Law, Economics, and Organization
StatePublished - Nov 2014

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