Strategyand Transaction Costs: The Organizationofdistributioninthecarbonatedsoftdrinkindustry

Abstract

This paper analyzes the ongoing transformation of the soft drink distribution of Coca‐Cola and Pepsi‐Cola from systems of independent bottlers to captive bottling subsidiaries, A transaction cost‐based theory is developed to explain this restructuring. It is postulated that changes in the external environment and the resulting changes in the strategies of Coca‐Cola and Pepsi‐Cola raised the costs of transacting between them and their independent bottlers. Two types of empirical tests are presented. One exploits the difference in the distribution of Coca‐Cola and Pepsi‐Cola in the fountain channel. The other consists of statistical analyses of the competitive effects of the move toward captive distribution. Both types of tests support the basic hypothesis.