What Should Be Inside The Firm

1. By Samuel Phineas Upham
What Should be Inside the Firm

2. Coke and Pepsi and Their Bottlers
 Changing relationship
 used only bottling distributors
 Over the last two decades, buying or taking stakes in their bottlers
1) own about half their bottling distributors
2) hold stakes in about twenty percent of the remaining independent
bottlers.
 What caused Coke and Pepsi to begin to internalize bottling and
distributing?
 What effects this change has on the market.
 Historical structural analysis
 Changing technology, marketing, and marketplace
 advantageous to internalize what was formerly efficiently externalized
 transaction cost theory serves as a powerful explanatory and predictive
mechanism

3. Theoretical Concepts
 synthesizing differing historical/economic/structural approaches into one
 understanding how transaction cost analysis specifically interacts with
market attributes
 two historical/transaction cost frameworks and contrast them.
 Their claim
 When Coke and Pepsi began their bottling operations.
 contracted with their bottlers
 bottlers had right to distribute the companies drinks in a certain area
 invest in company specific assets and develop complex distribution
networks
 as well as invest/cooperate in advertising and marketing efforts.

4. Three Decades Later
 The situation has changed over the last 30 years
 changing structure of the market prompted a change in the firm and in
strategy
 the size and complexity of transactions began to change
 rise of supermarkets such as Wall-Mart and fast-food chains
 Marketing and media campaigns required national coordination and quick
response and cooperation.
 The need for the above coordination has led to a concentration of bottlers
 Final Argument: soft drink industry bought 50 percent of bottling companies
 Took part control of about 20 percent of the remaining ones.
 Externalizing bottling and distribution no longer makes sense

5. The Use of Data
 Data: largely archives and sources such as the Nielsen Scantrack database
 What did they do?
 Extensive use of logarithmic models to generate tables of numbers.
 Not powerful enough
 Use of odd codes and near inscrutable acronyms
 More powerful for analytical argument about transaction costs than on hard
data.
 Most powerful when predicting the effects of internalizing bottling on the
market prices.

6. The Use of Data
 Data: largely archives and sources such as the Nielsen Scantrack database
 What did they do?
 Extensive use of logarithmic models to generate tables of numbers.
 Not powerful enough
 Use of odd codes and near inscrutable acronyms
 More powerful for analytical argument about transaction costs than on hard
data.
 Most powerful when predicting the effects of internalizing bottling on the
market prices.