Tag: Superman

Kooba Cola: The Worst Business Strategy Ever?

One of the key lessons of economics is that competition serves to push firms toward serving the interests of consumers. When existing firms in an industry are making an economic profit, new firms will enter the industry, which increases the quantity of the good produced and lowers the good’s price. Entry is the essential mechanism that drives a competitive market economy towards achieving allocative efficiency—with the mix of goods and services produced matching consumer preferences—and productive efficiency—with goods and services being produced at the lowest possible cost. (We discuss allocative efficiency and productive efficiency in Chapter 1, Section 1.2.)

For entry to occur requires the efforts of entrepreneurs, who constantly search for opportunities to make a profit. (We discuss the role of entrepreneurs in a market economy in Chapter 2, Section 2.3.)  Although, not well remembered today, Victor S. Fox was one of the more flamboyant entrepreneurs in U.S. business history. Fox was born in England in 1893 and moved with his family to Massachusetts three years later. As a young man, he started a firm to manufacture women’s clothing. In 1917, with the entry of the United States into World War I, Fox’s firm switched to producing military uniforms. In 1920, after the end of the war, Fox founded Consolidated Maritime Lines to buy from the U.S. government confiscated German and Austrian cargo ships. Fox also purchased a coal mine in Virginia to provide fuel for the ships. This effort ended in bankruptcy.

In 1929, Fox founded Allied Capital Corporation to invest in the stock market. This firm also failed amid accusations that Fox had broken securities laws. (Most of the information on Fox’s early career is from this site, which relies primarily on mentions of Fox in newspapers.) In 1936, Fox founded Fox Feature Syndicate to produce magazines. At that point, very few comic books were being published. That changed in April 1938, when National Allied Publications released Action Comics, featuring Superman—generally considered the first superhero to appear in comic books.  Sales of Superman comic books soared and Fox responded by entering the comic book industry, publishing a comic book starring Wonder Man. Wonder Man was an obvious copy of Superman, which led Superman’s publisher to file a lawsuit against Fox for copyright infringement. Fox agreed to stop publishing Wonder Man, but continued to publish comic books starring superheroes who weren’t such obvious copies of Superman.

As this summary of Fox’s career indicates, he was an entrepreneur who was willing to enter a new industry whenever he saw a profit opportunity, even if he lacked previous experience in the industry. In 1941, the continuing success of Coca-Cola and Pepsi-Cola led Fox to attempt to enter the cola industry in what was his most audacious entrepreneurial effort.  The high sales of his comic books gave Fox a platform to advertise his new soft drink —Kooba cola.  The following are some of Fox’s advertisements for Kooba cola.

Fox also advertised Kooba on a radio program featurning the Blue Beetle, one of his comic book superheroes. In the print advertisements for Kooba, Fox seems to have focused on two points in an attempt to differentiate his cola from existing colas, particularly Coke and Pepsi. (We discuss the role product differentiation plays in competition among firms in Microeconomics and Economics, Chapter 13.) First, to help overcome the belief among some consumers that colas were an unhealthy drink, Fox emphasized that Kooba cola would contain vitamin B1. In 1941, vitamin B1 had only recently become available and was the subject of newspaper stories. Second, at 12 ounces, bottles of Kooba were nearly twice as large as the standard 6.5 ounce Coke bottle but would sell for the same 5 cent price. One of the advertisements above notes that a six-pack of Kooba had a price of only 25 cents.

How was Fox able to sell his new cola for about half the price per ounce of Coke or Pepsi? That’s unclear because—amazingly—at the time Fox was running these advertisements, not only was Kooba not “available everywhere,” as the advertisements claimed, it wasn’t available anywhere. Fox was heavily advertising a product that didn’t actually exist.

How did Fox hope to earn a profit selling a nonexistent product? Fox’s strategy was apparently to begin by heavily advertising Kooba in the hopes of sparking a demand for it. He seems to have believed that if enough people were inspired by his advertisements to ask for the cola at grocery stores and newsstands, he could approach an existing soft drink company and offer to license the Kooba name. He seems never to have intended to actually manufacture the cola, relying instead on royalties paid by the soft drink company he hoped to license the name to.

Perhaps unsurprisingly, Fox’s strategy failed. To capitalize on Fox’s advertising, a firm licensing the Kooba name would have had to find a way to make a profit despite selling the cola at a price about half the price charged by competitors. Because Fox had no experience in manufacturing colas, he presumably had no advice to give on how production costs could be reduced sufficiently to allow Kooba to be sold at a profit.

Fox engaged in other entrepreneurial efforts before passing away in 1957. Over the years, Fox pursued a number of business strategies, some of which were successful, at least for a time. But his attempt to make a profit by promoting a nonexistent cola ranks among the the most dubious strategies in U.S. business history. A strategy that likely left some consumers puzzled that a cola that appeared in advertisements was never available in store.

Shrinkflation in the Comic Book Industry

Action Comics No. 1, published in June 1938, is often consider the first superhero comic book. (Image from comics.org.)

In a political advertisement that ran before the broadcast of the Super Bowl, President Joe Biden discussed shrinkflation, which refers to firms reducing the quantity of a product in container while keeping the price unchanged. In this post from the summer of 2022, we discussed examples of shrinkflation—including Chobani reducing the quantity of yogurt in the package shown here from 5.3 ounces to 4.5 ounces—and noted that shrinkflation complicates the job of the Bureau of Labor Statistics when compiling the consumer price index. 

This yogurt remained the same price although the quantity of yogurt in the container shrank from 5.3 ounces to 4.5 ounces.

Shrinkflation isn’t new; firms have used the strategy for decades. Firms are particularly likely to use shrinkflation during periods of high inflation or during periods when the federal government implements price controls.  Firms also sometimes resort to shrinkflation when the the price of a product has remained constant for long enough that the firms fear that consumers will react strongly to the firms increasing the price.

Comic books provide an interesting historical example of shrinkflation. David Palmer, a professor of management at South Dakota State University published an article in 2010 in which he presented data on the price and number of pages in copies of Action Comics from 1938 to 2010. When DC Comics introduced Superman in the first issue of Action Comics in June 1938, it started the superhero genre of comic books. Action Comics No. 1 had a price of $0.10 and was 64 pages.

After the United States entered World War II in December 1941, the federal government imposed price controls to try to limit the inflation caused by the surge in spending to fight the war. Rising costs of producing comic books, combined with the difficulty in raising prices because of the controls, led comic book publishers to engage in shrinkflation. In 1943, the publishers reduced the number of pages in their comics from 64 to 56. In 1944, the publishers engaged in further shrinkflation, reducing the number of pages from 56 to 48.

In 1951, during the Korean War, the federal government again imposed price controls. Comic book publishers responded with further shrinkflation, keeping the price at $0.10, while reducing the number of pages from 48 to 40. In 1954, they shrank the number of pages to 36, which remains the most common number of pages in a comic book today. At that time, the publishers also slightly reduced the width of comics from 7 3/4 inches to 7 1/8 inches. (Today the typical comic book has a width of 6 7/8 inches.)

By the late 1950s, comic book publishers became convinced that they would be better off raising the prices of comic books rather than further shrinking the number of pages. But they were reluctant to raise their prices because they had been a constant $0.10 for more than 20 years, so children and their parents might react very negatively to a price increase, and because no firm wanted to be the first to raise its price for fear of losing sales to its competitors. They were caught in a prisoner’s dilemma: Comic book publishers would all have been better off if they had raised their prices but the antitrust laws kept them from colluding to raise prices and no individual firm had an incentive to raise prices alone. (We discuss collusion, prisoner’s dilemmas, and other aspects of oligopolistic firm behaviour in Chapter 14 of Microeconomics and Economics.)

The most successful publisher in the 1950s was Dell, which sold very popular comic books featuring Donald Duck, Uncle Scrooge, and other characters that particularly appealed to younger children. Because the prices of Dell’s comic books, like those of other publishers, been unchanged at $0.10 since the late 1930s, the firm didn’t have a clear idea of the price elasticity of demand for its comics. In 1957, the firm’s managers decided to use a market experiment to gather data on the price elasticity of demand. In most cities, Dell kept the price of its comics at $0.10, but in some cities it sold the identical comics at a price of $0.15.

The experiment lasted from March 1957 to August 1958 when the company discontinued it by reverting to selling all of its comics for $0.10. Although we lack the data necessary to compare the sales of Dell comics with a $0.15 price to the sales of Dell comics with a $0.10 price, the fact that no other publisher raised its prices during that period and that Dell abandoned the experiment indicates that the demand curve for Dell’s comics was price elastic—the percentage decline in the quantity sold was greater than the 50 percent increase in price—so Dell’s revenue from sales in the cities selling comics with a price of $0.15 likely declined. Dell’s strategy can be seen as a failed example of price leadership. (We discuss the relationship between the price elasticity of demand for a good and the total revenue a firm earns from selling the good in Chapter 6, Section 6.3 of Microeconomics and Economics. We discuss price leadership in Microeconomic and Economics, Chapter 14, Section 14.2.)

In March 1961, Dell increased the price of all of its comics from $0.10 to $0.15. At first, Dell’s competitors kept the prices of their comics at $0.10. As a result, in September 1961, Dell cut the price of its comics from $0.15 to $0.12. By early 1962, Dell’s competitors, including DC Comics, Marvel Comics—publishers of Spider-Man and the Fantastic Four—along with several smaller publishers, had increased the prices of their comics from $0.10 to $0.12. The managers at DC decided that raising the price of comics after having kept it constant for so long required an explantion. Accordingly, they printed the following letter in each of their comics.

H/T to Buddy Saunders for the image.

Comic book publishers have raised their prices many times since the early 1960s, with most comics currently having a price of $4.99. During the recent period of high inflation, comic publishers did not use a strategy of shrinkflation perhaps because they believe that 36 pages is the minimum number that buyers will accept.

The first 25 years of the comic book industry represents an interesting historical example of shrinkflation.