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

retail, wholesale and total margins obtained from this estimation (remind that for private labels
total margins are equal to retail margin by convention and thus on average total margins are lower
than the sum of average retail and wholesale margins). In Model 4, we assume that wholesale prices
are equal to the marginal cost of production. It corresponds to the case of equation (19). Model 5
is the case where the wholesale prices are such that the retailers’ margins are zero. Finally, models
6 and 7 are the case of two part tariffs contracts without resale price maintenance either without
endogenous buyer power (model 6) or with endogenous buyer power (model 7).

After estimating the different price-cost margins for the models considered, one can recover the
total marginal cost Cj_t and then estimate cost equations allowing to implement the non nested tests
across the different models. For such tests, we specify cost equations as follows, for h = 1,..., 7 :

ɪn ^cjt = ^ωb(j) + ^ωr(j) + ^wjt^_g + In η^tj_t

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