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Coca-Cola sues American exporters of Coke
Two kinds of Coca-Cola are sold in Japan. One is made in Japan, the other one in the U.S. The two types of Coke are sold under different names but the content is the same, namely classic Coke. The prices are quite different: whereas a case of Japanese Coke is sold for $27.40, the imported American Coke is sold for $18.30 a case only.
How can such a price gap be explained? The wholesale price of Coke in the U.S. is significantly lower than in the Japan. In addition, retail margins are also very high in Japan. This implies that, despite the transportation costs from the U.S. to Japan, it pays for an American exporter to buy in the U.S. at U.S. wholesale price and sell in Japan for a margin that makes imported Coke competitive with respect to the domestic one. In summary, this is a classic example of price discrimination being constrained by the ability to resell.
For more than four years, Coca-Cola has been battling against two small American firms that resell Coke--Omni Pacific and Dependable Vending. Coke's position is that the sale of its products outside specified regions raises quality control issues, infringes its trademark rights, and violates contracts with bottlers. The defendants respond that Coke is simply trying to drive them out of business. In fact, Omni Pacific and Dependable Vending have filed a countersuit alleging that Coke provided Japanese bottlers with discounted American-made Coca-Cola in an effort to drive them out of business.
In the U.S., Coke and other soft drink companies grant exclusive territories to bottlers in given locations. In fact, Coke and Pepsi will fine bottlers who are found to sell outside their territories. This type of contract is based on the Interbrand Competition Act, which holds that, as long as there is competition, exclusive territories are acceptable. However, no such law exists with respect to foreign countries.
Source: Constance L Hays, "In Japan, What Price Coca-Cola?" The New York Times, January 26, 2000.