actually even more concentrated at the manufacturer level with only three large manufacturers
than at the retailer level where we have in France seven large retailing chains.
In section 2, we first present some stylized facts on the bottled water market in France, an
industry where the questions of vertical relationships and competition of manufacturers and retai-
lers seem worth studying. Section 3 describes the main methodological contribution on the supply
side. We show how price-cost margins can be recovered with demand parameters, with the industry
structure and different assumptions on vertical contracts. Section 4 presents the demand model, its
identification and estimation method on individual data as well as the methodology developed to
test between the different models. In section 5, we discuss the empirical results and tests. Section
6 concludes and some appendices follow.
2 The Bottled Water Market in France
2.1 Stylized Facts
The bottled water market is an important sector of the French food processing industry : 68.2
billion liters were sold in 2006 (Agreste, 2009). It is also a highly concentrated sector since the three
main producers (Nestlé Waters, Danone, and Castel) share 90% of the total production of the sector.
Two types of water coexist, namely, natural mineral water and spring water. The denomination
of "natural mineral" water is officially recognized by an agreement from the French Ministry of
Health and puts forward properties favorable to health. Composition must be guaranteed as well
as the consistency of a set of qualitative criteria : mineral content, visual aspects, and taste. The
exploitation of a "spring water" source requires a license provided by local authorities and an
agreement of the local health committee but the water composition is not required to be constant.
The differences between the quality requirements involved in the certification of these two kinds of
water may explain part of the large differences that exists between the shelf prices of the mineral
water brands and the spring water brands. Moreover, mineral water brands are usually more
national and highly advertised.
In France, households buy bottled water mostly in supermarkets (80% of total sales) and on