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Effect Of Price Stickiness

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Running head: EFFECT OF PRICE STICKINESS
Effect of Price Stickiness
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EFFECT OF PRICE STICKINESS
Effect of Price Stickiness
In the 1900s there was a great demand for soft drinks, for instance, coke and Pepsi drinks.
Soft drink companies set up their prices between seven to ten cents a bottle. Unlike coke, it
had set its price at five cents. This price lockdown for a consecutive period of 70 years was
attributed by two lawyers. They approached the president of Coke Company and requested
for rights to the coke bottles. The coke president agreed to sign a perpetual contract of 5
cents, a nickel. Coke further embarked on an effective advertising campaign for these
products on gazettes and made people aware of this refreshing product that only goes for 5
cents. However, the price of sugar started going up, and the company started losing money;
hence there was a need to renegotiate the contract.
Prices adjust slowly, hence the name sticky. Sticky prices are reluctant to change
despite the changes in demand patterns of a particular product or the input cost. When market
prices do not adjust immediately to the changing economic conditions, it creates an
inefficiency in the market, thus slowing macroeconomic adjustment of prices.
Other prices are sticky, for instance, when the wages of workers do not adjust quickly
to the changes in labour market conditions. It slows the economy's recovery from a recession.
When the demand for a product goes down, its price typically falls too. Estimates of some
goods, like gasoline, change daily. Wages can be sticky for a reason, such as an employment
contract. Price stickiness in products can be caused by demand patterns.

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1 Running head: EFFECT OF PRICE STICKINESS Effect of Price Stickiness Student’s Name Institution Affiliation Date 2 EFFECT OF PRICE STICKINESS Effect of Price Stickiness In the 1900s there was a great demand for soft drinks, for instance, coke and Pepsi drinks. Soft drink companies set up their prices between seven to ten cents a bottle. Unlike coke, it had set its price at five cents. This price lockdown for a consecutive period of 70 years was attributed by two lawyers. They approached the president of Coke Company and requested for rights to the coke bottles. The coke president agreed to sign a perpetual contract of 5 cents, a nickel. Coke further embarked on an effective advertising campaign for these products on gazettes and made people aware of this refreshing product that only goes for 5 cents. However, the price of sugar started going up, and the company started losing mon ...
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