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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, Céline
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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References listed on IDEAS
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    Other versions:
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  7. Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
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Cited by:
(explanations, 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. George Symeonidis, 2009. "Downstream merger and welfare in a bilateral oligopoly," Economics Discussion Papers 671, University of Essex, Department of Economics. [Downloadable!]
  2. Battigalli, Pierpaulo & Fumagalli, Chiara & Polo, Michele, 2006. "Buyer Power and Quality Improvements," CEPR Discussion Papers 5814, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Sofia Villas-Boas, 2008. "An Empirical Investigation of the Welfare Effects of Banning Wholesale Price Discrimination," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1017, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
    Other versions:
  4. Walter Beckert, 2009. "Empirical analysis of buyer power," CeMMAP working papers CWP17/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  5. Didier G. Laussel, 2006. "Are Manufacturers Competing through or with Supermarkets? A Theoretical Investigation," The B.E. Journal of Theoretical Economics, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
  6. Inderst, Roman & Wey, Christian, 2005. "How Strong Buyers Spur Upstream Innovation," CEPR Discussion Papers 5365, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Richards, Timothy J. & Acharya, Ram & Molina, Ignacio, 2009. "Retail and Wholesale Market Power in Organic Foods," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49329, Agricultural and Applied Economics Association. [Downloadable!]
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