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



Γ of wholesale prices :

7 + Γ = - (∑r IrS'pIrSpIr + .f S'pιisp} -

(∑r IrSPIr [Φ) - SpIrΓ] + f spIf [s(p) - Sp(I - If )Γ])       (14)

With RPM, there is a continuum of equilibria depending on the vector of wholesale prices w. We
will see in section 4.2 that further assumptions or restrictions can help characterize and identify
some of these equilibria from observed data.

3.2.2 Without Resale Price Maintenance

We now present the case where where manufacturers cannot apply RPM. Then, whether retai-
lers have endogenous buyer power or not makes a difference on the equilibrium retail prices.

In absence of RPM, the retailers prices pfr (w) are out of equilibrium prices different from the
retail prices in equilibrium. The first order conditions of the maximization of the profit of
f (11)

with respect to wholesale prices wi, j Gf, are then :

J
∑∑(ws
i=l s Gf


μs )


∂ss (p) ∂pi

dpi ∂wj


J

+

s=l


<⅛s t ʌ
â—Ss(
p)
dw
j


dpfr(s)
dwj


Ss(p-fr(s) )


J J -
+ΣΣ (p


i=l s = l


’s


dss(p) dpi
ws - cs) —---—

dpi dwj


- (pGs> - ws - cs)


dss(pfr(s) dpi
dpi    dwj


In matrix notation, the previous first order conditions give

0 = If PwSpIf Γf + If Pws(p) - If F>ls(pf ) + If PwSp7 - If PwSp7f

.         ,,           . ∙ nf ∙

where the matrix Sp is


ds1(pfr<1>)
dpi

.

.

.

dsι(pfr<1>)
dp j


dsj (pf'dj)
dpi


dsj (pfrdj))
dpj


and P,W is the matrix of first order derivatives of retail prices ppr(j>(w) (for j = 1,.., J) with respect
to wholesale prices w.

Thus the wholesale margins of products of manufacturer f are

Γf = - [IfPwSpIf ' (lfPws(p) - IfPWstf) + IfPwSp7 - IfPwSp7f)        (15)

16



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