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



The statistics of test Tn show that the best model appears to be the model 7. Thus, our empirical
evidence shows that, on this market of bottled water, manufacturers and retailers use two part
tariffs contracts without resale price maintenance (RPM) and this model also indicates that the
buyer power of retailers is affected endogenously by their outside opportunities.

Concerning this inference on the vertical relationship, other variants tested were also rejected.
For example, all the variants of two part tariffs contracts without RPM where uniform wholesale
pricing is imposed were also rejected, as well as models of collusion between manufacturers or
between retailers.

Let’s comment more on the preferred model. This is a model with two part tariff contract, and
no RPM, which contrasts with what was found in Bonnet and Dubois (2010) on the 1998-2000
period where RPM was found. It is interesting because in 2005, the Galland act was removed and
replaced by another law in order to redefine resale at loss by retailers and prevent the use of high
list wholesale prices to implement RPM. Actually, RPM is in principle forbidden in France but
the evidence found in Bonnet and Dubois (2010) was consistent with the worries of the compe-
tition authority that the Galland act (in force between 1996 and 2005) allowed manufacturers to
implement RPM equilibrium. Indeed, the definition of thresholds for resale at loss did not take
into account backward margins and only wholesale unitary list prices which could be set as high
as wanted to enforce minimum retail prices, while compensating retailers with backward margins.
After 2005, this became impossible because the definition of minimum retail prices to define resale
at loss did include part of the backward margins. It seems that the change in the law did succeed
in avoiding manufacturers to mimic RPM.

Also, for this preferred model, Table 4 shows that the average price-cost margins are of 35.9%
for mineral water and 63.3% for spring water. In absolute values, the price-cost margins are on
average 0.1∙3
C for mineral water and 0.09C for spring water because mineral water is on average
more expensive. For this best model, the average total price-cost margins for national brands is
48.2% while it is of 26.4% for private labels. Remark that the high average margin for national

32



More intriguing information

1. The name is absent
2. Chebyshev polynomial approximation to approximate partial differential equations
3. The Macroeconomic Determinants of Volatility in Precious Metals Markets
4. Family, social security and social insurance: General remarks and the present discussion in Germany as a case study
5. Comparison of Optimal Control Solutions in a Labor Market Model
6. The name is absent
7. What Lessons for Economic Development Can We Draw from the Champagne Fairs?
8. MATHEMATICS AS AN EXACT AND PRECISE LANGUAGE OF NATURE
9. The Evolution
10. Review of “The Hesitant Hand: Taming Self-Interest in the History of Economic Ideas”
11. FISCAL CONSOLIDATION AND DECENTRALISATION: A TALE OF TWO TIERS
12. TLRP: academic challenges for moral purposes
13. Educational Inequalities Among School Leavers in Ireland 1979-1994
14. Draft of paper published in:
15. How much do Educational Outcomes Matter in OECD Countries?
16. CREDIT SCORING, LOAN PRICING, AND FARM BUSINESS PERFORMANCE
17. Does South Africa Have the Potential and Capacity to Grow at 7 Per Cent?: A Labour Market Perspective
18. The Role of area-yield crop insurance program face to the Mid-term Review of Common Agricultural Policy
19. Spatial Aggregation and Weather Risk Management
20. THE CHANGING RELATIONSHIP BETWEEN FEDERAL, STATE AND LOCAL GOVERNMENTS