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

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  • Dubois, Pierre
  • Bonnet, Céline

Abstract

We present the first empirical estimation of a structural model taking into account explicitly the endogenous buyer power of downstream players facing two part tariffs contracts offered by the upstream level. We consider vertical contracts between manufacturers and retailers where resale price maintenance may be used with two part tariffs and allow retailers to have some endogenous buyer power from the horizontal competition of manufacturers. Our contribution allows to recover price-cost margins at the upstream and downstream levels in these different structural models using the industry structure and estimates of demand parameters. We apply it to the market of bottled water in France, estimating 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 endogenous to the structure of manufacturers competition.

Suggested Citation

  • Dubois, Pierre & Bonnet, Céline, 2010. "Non Linear Contracting and Endogenous Buyer Power between Manufacturers and Retailers: Empirical Evidence on Food Retailing in," CEPR Discussion Papers 8029, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8029
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    Citations

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    Cited by:

    1. Nicoletta Berardi & Patrick Sevestre & Marine Tépaut & Alexandre Vigneron, 2016. "The impact of a ‘soda tax’ on prices: evidence from French micro data," Applied Economics, Taylor & Francis Journals, vol. 48(41), pages 3976-3994, September.
    2. Haucap, Justus & Heimeshoff, Ulrich & Klein, Gordon J. & Rickert, Dennis & Wey, Christian, 2013. "Inter-format competition among retailers: The role of private label products in market delineation," DICE Discussion Papers 101, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Villas-Boas, Sofia B & Bonnet, Celine, 2016. "Asymmetric Consumer Price Responses and Asymmetric Cost Pass-Through," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt172676f9, Department of Agricultural & Resource Economics, UC Berkeley.
    4. Celine Bonnet & Pierre Dubois & Sofia B. Villas Boas & Daniel Klapper, 2013. "Empirical Evidence on the Role of Nonlinear Wholesale Pricing and Vertical Restraints on Cost Pass-Through," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 500-515, May.
    5. Walter Beckert, 2018. "An Empirical Analysis of Countervailing Power in Business-to-Business Bargaining," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(3), pages 369-402, May.
    6. Cuiabano, Simone, 2017. "Competition Policy Evaluation through Damage Estimation in Fuel Retail Cartel," TSE Working Papers 17-847, Toulouse School of Economics (TSE).
    7. Chrysovalantou Milliou & Apostolis Pavlou, 2013. "Upstream Mergers, Downstream Competition, and R&D Investments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(4), pages 787-809, December.
    8. Haucap, Justus & Heimeshoff, Ulrich & Klein, Gordon J. & Rickert, Dennis & Wey, Christian, 2013. "Bargaining power in manufacturer-retailer relationships," DICE Discussion Papers 107, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    9. José A. Tavera & Tilsa Oré Mónago, 2018. "Milking the Milkers: a Study on Buyer Power in the Dairy Market of Peru," Documentos de Trabajo / Working Papers 2018-470, Departamento de Economía - Pontificia Universidad Católica del Perú.

    More about this item

    Keywords

    Competition; Differentiated products; Double marginalization; Endogenous buyer power; Manufacturers; Mixed logit; Non nested tests; Retailers; Two part tariffs; Vertical contracts;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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