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



average, these sales represent 1.7% of the total turnover of supermarkets, the bottled water shelf
being one of the most productive. Manufacturers thus deal mainly their brands through retailing
chains which are also highly concentrated on food retailing (the market share of the first five
being around 80
% of total food retailing). Since the late 90s, food retailing chains have developed
private labels (also called store brands) and the increase in the number of private labels tends to
be accompanied by a reduction of the market shares of the main national brands.

This market is thus very concentrated and competition concerns are usually put forward. Re-
gulation of the food retailing and supermarket industry is quite important in France with strong
rules on zoning and entry of supermarket stores (Bertrand and Kramarz, 2002, Jodar-Rosell, 2008)
and also detailed rules about vertical contracting between manufacturers and retailers. On this
last regulation, it has been shown in Bonnet and Dubois (2010), which studied the same market
with aggregate data from 1998-2000, that resale price maintenance (RPM) with non linear vertical
contracts seemed to explain the observed pricing. This evidence is consistent with the fact that the
Galland act (introduced in 1996) prohibited resale at loss for retailers and defined the threshold
level of prices from wholesale list prices not including any backward margins. Implementing RPM
implicitly was then feasible with this regulation. Such concern led to the removal of the Galland
act by the competition authority with a new law called the nDutreil II" elaborated in 2005 and
effective on January 2006. There is thus a policy interest in studying competition and pricing rela-
tionships after 2006 which is done in this paper in addition to estimating the demand on individual
data and allowing endogenous buyer power for retailers.

2.2 Data and Variables

Our data were collected by the company TNS World Panel and consists of a survey on hou-
seholds’ consumption in France using a home-scan technique. We use a representative sample of
French households for the year 2006 for which we have information on their purchases of all food
products. The data provides a description of the main characteristics of the goods whose purchases
are recorded over the whole year. We thus have quantity, price, brand, date and store of pur-



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