Artikel

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.

Sprache
Englisch

Erschienen in
Journal: Southern Economic Journal ; ISSN: 2325-8012 ; Year: 2021 ; Issue: forthcoming ; Hoboken: Wiley

Klassifikation
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-
Thema
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, and Loyalty
Nickel Coke
Sticky Prices
Price Stickiness
Rigid Prices
Price Rigidity
Cost of Price Adjustment
Menu Cost
Cost of Quality Adjustment

Ereignis
Geistige Schöpfung
(wer)
Levy, Daniel
Young, Andrew T.
Ereignis
Veröffentlichung
(wer)
Wiley
ZBW - Leibniz Information Centre for Economics
(wo)
Hoboken
(wann)
2021

Handle
Letzte Aktualisierung
10.03.2025, 11:45 MEZ

Datenpartner

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Objekttyp

  • Artikel

Beteiligte

  • Levy, Daniel
  • Young, Andrew T.
  • Wiley
  • ZBW - Leibniz Information Centre for Economics

Entstanden

  • 2021

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