Arbeitspapier
Promise, trust and betrayal: Costs of breaching an implicit contract
We study the cost of breaching an implicit contract in a goods market. Young and Levy (2014) document an implicit contract between the Coca-Cola Company and its consumers. This implicit contract included a promise of constant quality. We offer two types of evidence of the costs of breach. First, we document a case in 1930 when the Coca-Cola Company chose to avoid quality adjustment by incurring a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost. Second, we explore the consequences of the company's 1985 introduction of "New Coke" to replace the original beverage. Using the Hirschman's (1970) model of Exit, Voice, and Loyalty, we argue that the public outcry that followed New Coke's introduction was a response to the implicit contract breach.
- Language
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Englisch
- Bibliographic citation
-
Series: Working Paper ; No. 2020-07
- Classification
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Wirtschaft
Price Level; Inflation; Deflation
Basic Areas of Law: General (Constitutional Law)
Production, Pricing, and Market Structure; Size Distribution of Firms
Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices
Food; Beverages; Cosmetics; Tobacco; Wine and Spirits
Business Economics: General
Marketing and Advertising: General
Micro-Business History: General, International, or Comparative
Micro-Business History: U.S.; Canada: 1913-
- Subject
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Invisible Handshake
Implicit Contract
Customer Market
Long-Term Relationship
Cost of Breaching a Contract
Cost of Breaking a Contract
Coca-Cola
New Coke
Exit
Voice
Loyalty
Nickel Coke
Sticky/Rigid Prices
Cost of Price Adjustment
Cost of Quality Adjustment
- Event
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Geistige Schöpfung
- (who)
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Levy, Daniel C.
Young, Andrew T.
- Event
-
Veröffentlichung
- (who)
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Bar-Ilan University, Department of Economics
- (where)
-
Ramat-Gan
- (when)
-
2020
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Levy, Daniel C.
- Young, Andrew T.
- Bar-Ilan University, Department of Economics
Time of origin
- 2020
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