What Should Be Inside The Firm

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

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 • own about half their bottling distributors • 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.