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Two-Part Tariffs versus Linear Pricing Between Manufacturers and Retailers: Empirical Tests on Differentiated Products Markets

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Author Info
Bonnet, Celine
Dubois, Pierre
Simioni, Michel

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Abstract

We present a methodology allowing to introduce manufacturers and retailers vertical contracting in their pricing strategies on a differentiated product market. We consider in particular two types of non linear pricing relationships, one where resale price maintenance is used with two part tariffs contracts and one where no resale price maintenance is allowed in two part tariffs contracts. Our contribution allows to recover price-cost margins from estimates of demand parameters both under linear pricing models and two part tariffs. The methodology allows then to test between different hypothesis on the contracting and pricing relationships between manufacturers and retailers in the supermarket industry using exogenous variables supposed to shift the marginal costs of production and distribution. We apply empirically this method to study the market for retailing bottled water in France. Our empirical evidence shows that manufacturers and retailers use non linear pricing contracts and in particular two part tariffs contracts with resale price maintenance. At last, thanks to the estimation of the our structural model, we present some simulations of counterfactual policy experiments like the change of ownership of some products between manufacturers.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6016.

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Date of creation: Dec 2006
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Handle: RePEc:cpr:ceprdp:6016

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Related research
Keywords: collusion competition differentiated products double marginalization manufacturers non nested tests. retailers two part tariffs vertical contracts water

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Liebowitz, S J, 1982. "What Do Census Price-Cost Margins Measure?," Journal of Law & Economics, University of Chicago Press, vol. 25(2), pages 231-46, October.
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  1. Pierpaolo Battigalli & Chiara Fumagalli & Michele Polo, . "Buyer Power and Quality Improvement," Working Papers 310, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  2. Inderst, Roman & Wey, Christian, 2005. "How Strong Buyers Spur Upstream Innovation," CEPR Discussion Papers 5365, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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