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Identifying Two Part Tariff Contracts with Buyer Power: Empirical Estimation on Food Retailing

Author

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  • Bonnet, Céline
  • Dubois, Pierre

Abstract

Using typical demand data on differentiated products markets, we show how to identify and estimate vertical contract terms modelling explicitly the buyer power of downstream firms facing two part tariff offered by the upstream firms. We consider manufacturers and retailers relationships with two part tariff with or without resale price maintenance and allow retailers to have a buyer power determined by the horizontal competition of manufacturers. Our contribution allows to recover price-cost margins at the upstream and downstream levels as well as fixed fees of two-part tariff contracts using the industry structure and estimates of demand parameters. Empirical evidence on the market for bottles of water in France shows that two part tariff contracts are used without resale price maintenance and that the buyer power of supermarket chains is endogenous to the structure of manufacturers competition. We are able to estimate total fixed fees and profits across manufacturers and retailers.

Suggested Citation

  • Bonnet, Céline & Dubois, Pierre, 2015. "Identifying Two Part Tariff Contracts with Buyer Power: Empirical Estimation on Food Retailing," TSE Working Papers 15-575, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:29303
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    Cited by:

    1. Hayashida, K., 2018. "Bargaining Power between Food Processors and Retailers: Evidence from Japanese Milk Transactions," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277730, International Association of Agricultural Economists.
    2. Chrysovalantou Milliou & Konstantinos Serfes, 2023. "Supplier Encroachment with Mutual Outsourcing," CESifo Working Paper Series 10519, CESifo.
    3. Hugo Molina, 2024. "Buyer Alliances in Vertically Related Markets," Working Papers hal-03340176, HAL.
    4. Debasmita Basak, 2023. "Price and Quantity Competition under Vertical Pricing," Games, MDPI, vol. 14(4), pages 1-8, June.

    More about this item

    Keywords

    vertical contracts; two part tariff; buyer power; retailers; differentiated products;
    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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