From 1886 to 1959, the price of a bottle of 6.5 oz Coca-Cola remained constant at five cents. Through wars, lawsuits, bans, and the Great Depression, the price of a bottle of Coca-Cola somehow managed to remain constant. Economists Daniel Levy and Andrew T. Young sought an explanation for this anomaly. They presented their findings in “The real thing”: Nominal Price Rigidity of the Nickel Coke, 1886-1959, where they found that a bottling contract, an aggressive marketing campaign, and vending machines were some of the main reasons that a 6.
5 oz bottle of Coca-Cola cost a nickel for over 70 years.
In 1886, the first nickel coke was sold at Jacobs Pharmacy in Atlanta. At the time, many other fountain drinks were being sold at up to ten cents per serving. Coca-Cola was precedence at five cents to be an affordable alternative. Fast forward to 1899, The Coca-Cola Company sold bottling rights to two Tennessee lawyers. The bottling contract gave the lawyers the right to purchase syrup from The Coca-Cola Company at a nominal price of price of $0..
92 per gallon. The big catch here is that Asa Candler, president of The Coca-Cola Company at the time, scoffed at the idea of bottled beverages, and it is believed that to shoo away the lawyers, he agreed to sell them the syrup at a fixed price in perpetuity. This meant that no matter how successful the sales of Coca-Cola got, The Coca-Cola company was legally obligated to sell the syrup to bottlers at the fixed price of $0.92 per gallon.
While Candler and The Coca-Cola Company could not increase the price of the syrup, nothing prevented the bottlers from increasing the price of the bottled product in line with increasing demand.
The Coca-Cola Company would not benefit from an increase in the price of Coca-Cola. An increase in profits would mostly benefit the bottlers and a price increase would likely lead to less demand, which would mean less syrup sold to bottlers. To prevent bottlers from increasing prices, The Coca-Cola Company embarked on an aggressive nationwide marketing campaign that focused on advertising the five-cent price point of Coca-Cola products.
This marketing campaign was widely successful, evident by angry consumers who vowed to not do business with retailers who sold Coca-Cola more expensive than five cents. As a result, bottlers and retailers had to negotiate prices with the knowledge that a bottle of Coca-Cola would not be sold to consumers at a higher price than five cents.
The other big reason Coca-Coal remained priced at five cents was the vending machines. Levy and Young estimated that by 1950, there were around 400,000 Coca-Coal vending machines and 25% of sales of Coca-Cola were through these vending machines. The vast majority of these machines were designed to only accept a nickel to make a purchase. The next highest coin denomination was a dime, but that would have meant a 100% increase in the price of Coca-Cola. Executives for Coca-Cola did not like the idea of increasing the price anywhere below a dime, which meant inconveniencing consumers to fumble with extra coins and updating current machines to accept extra coins. The authors estimate that updating or replacing the nickel-only machines would have cost anywhere between $286 million and $900 million in 1992 prices.
The price of commodities fluctuates to various market forces. It is extremely uncommon for the price of a commodity or product to stay constant over a long period. A 6.5 oz bottle of Coca-Cola defied all economic expectations by staying at a constant price of five cents for over 70 years. A one-sided contract, countered by an energetic marketing campaign, and hundreds of thousands of rudimentary vending machines contributed to this anomaly. By 1946, vending machines that were capable of outputting change began to replace nickel-only vending machines and rising costs due to inflation finally put the nickel coke to bed.