Brenkers and Verboven, 2006) and vertical contracts are quite simple. Villas-Boas (2007) considers
the possibility that vertical contracts between manufacturers and retailers make pricing strategies
depart from double marginalization by setting alternatively wholesale margins or retail margins to
zero. Bonnet and Dubois (2010) extends the analysis modelling explicitly two-part tariffs contracts
with or without resale price maintenance, assuming that the bargaining power between manufac-
turers and retailers is exogenously fixed.
However, the consideration of endogenous buyer power within a vertical relationship coming
from horizontal competition at the upstream level has never been taken into account. Here, we allow
retailers to benefit from some endogenous buyer power when facing manufacturers contracts offers.
The endogenous buyer power comes from the available competing offers by other manufacturers
that can be used as outside options by retailers in addition to the explicit consideration of profits
that retailers can always entail from their private label own brands.
We show how we can identify and estimate price-cost margins at the retailer and manufacturer
levels under the different competition scenarios considered without observing marginal costs and
wholesale prices. Modelling explicitly optimal two part tariffs contracts (with or without resale price
maintenance) allows to recover the pricing strategy of manufacturers and retailers. We do not only
recover the total price-cost margins as functions of demand parameters but also the division of
these margins between manufacturers and retailers under some additional assumptions on the cost
structure allowing to estimate unobserved wholesale prices. Using non nested test procedures as in
Bonnet and Dubois (2010), we can test between the different models using restrictions on marginal
costs or exogenous variables that shift the marginal costs of production and distribution.
We apply our modelling to the bottled water market in France using estimates of 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
endogenously determined by the offers of the multiple manufacturers. This market presents a high
degree of concentration both at the manufacturer and retailer levels. It is to be noted that it is