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



taste shocks Uijt are independently and identically distributed according to a Gumbel (extreme
value type 1) distribution, so that the probability
Lijt of buying j for consumer i at period t
conditional on ai and δi can be written :

Lijt (ai , δi )


exp(¼jt)

1 + fcexp(‰)

where Vijt = βb^ + βr(j) + δiXj - aipjt + τηjt

For simplicity, we assume that (yδ ,vβ^ are independent and normalalize their variance to
one and mean to zero. Denoting
f the standard normal probability distribution function, the
unconditional probability of the observed sequence of
T choices for consumer i is then
where
β is the vector of all βb and βr parameters in (18), j(i,t) is the chosen alternative by
consumer
i at period t and f (αα, σ) and f (δi δ, σδ) are the p.d.f. of the random coefficients ai
and δi respectively.

Pi(a,σa,β, δ,σδ)


∙T


Lij(i,t)t(ai7 δi


))


f (aia, σa)f (δiδ, σδ)daii.


Then, the log likelihood of the sample of choices over N individuals is :

∑^1 In [Fi(α,σ,β, δ,σδ)] .

The probability of the observed sequence of choice for consumer i is approximated with simulation
for any given value of
(a, σα, β, δ, σδ) and can be written :

SPi(a,σa,β,δ,σδ) = R ∑*χ (∏^ Джфгrɔ

where R is the number of simulations, ar and δr are the rth Halton draws of the distributions
f (αiα, σ) and f (δiδ, σδ) respectively.

Then, the model parameters are estimated by maximizing the simulated likelihood (Train, 2009)
which is

SLL(a, σa, β, δ, σδ) = V ' ɪ In [SPi(a, σa, β, δ, σδ)]

with respect to a, σa, β, δ, σδ.

21



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