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Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Nonlinear Pricing and Resale Price Maintenance

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  • Bonnet, Céline
  • Dubois, Pierre

Abstract

We present a model of vertical contracts between manufacturers and retailers with nonlinear pricing strategies. Using home-scan data on bottled water produced by manufacturers and sold by retail chains in France, we estimate a structural demand and supply model allowing for two-part tariff contracts between manufacturers and retailers. Using price-cost margins recovered from estimates of demand parameters, we select the best supply model by performing nonnested tests, and find that manufacturers use two-part tariff contracts with resale price maintenance. We then perform counterfactual policy simulations that restrict the use of these vertical contracts and assess welfare effects under alternative scenarios. Copyright (c) 2010, RAND.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 09-040.

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Date of creation: May 2009
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Handle: RePEc:tse:wpaper:21975

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