Non Linear Contracting and Endogenous Buyer Power between Manufacturers and Retailers: Empirical Evidence on Food Retailing in France

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Non Linear Contracting and Endogenous Buyer Power
between Manufacturers and Retailers :
Empirical Evidence on Food Retailing in France

Céline Bonnet* and Pierre Dubois^

First Version : March 2006. This version : August 2010$

Résumé

We present the first empirical estimation of a structural model taking into account explicitly
the endogenous buyer power of downstream players facing two part tariffs contracts offered by
the upstream level. We consider vertical contracts between manufacturers and retailers where
resale price maintenance may be used with two part tariffs and allow retailers to have some
endogenous buyer power from the horizontal competition of manufacturers. Our contribution
allows to recover price-cost margins at the upstream and downstream levels in these different
structural models using the industry structure and estimates of demand parameters. We ap-
ply it to the market of bottled water in France, estimating a mixed logit demand model on
individual level data. Empirical evidence shows that two part tariffs contracts are used with
no resale price maintenance and that the buyer power of supermarket chains is endogenous to
the structure of manufacturers competition.

Key words : vertical contracts, two part tariffs, endogenous buyer power, double margi-
nalization, competition, manufacturers, retailers, differentiated products, water, mixed logit,
non nested tests.

JEL codes : L13, L81, C12, C33

*Toulouse School of Economics (GREMAQ, INRA)

tToulouse School of Economics (GREMAQ, INRA, IDEI)

⅛We specially thank P. Rey, T. Vergé, A. Pakes, B. Jullien, T. Magnac, V. Réquillart, K. Sudhir, A. Nevo,
M. Whinston, V. Nocke, S. B. Villas-Boas, O de Mouzon for useful discussions, as well as seminar participants at
Toulouse, Oxford, IFS∕UCL London, Duke, EUI Florence, CREST Paris, INSEAD, Alicante, Lyon, CEMFI Madrid,
Helsinki, the Federal Reserve Bank of Chicago, the Econometric Society European Meeting in 2006, the European
Association for Research in Industrial Economics conference in 2007, the Jornadas de Economia Industrial in 2006,
the European Economic Association conference in 2007, the conference on Advances in the empirical analysis of
retailing in Berlin in 2006. Any remaining errors are ours.

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