Working Paper: CEPR ID: DP10623
Authors: Cline Bonnet; Pierre Dubois
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.
Keywords: buyer power; differentiated products; retailers; two-part tariff; vertical contracts
JEL Codes: C12; C33; L13; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| competition among manufacturers (L11) | buyer power of retailers (L81) |
| buyer power of retailers (L81) | contractual terms (L14) |
| stronger competition among manufacturers (L11) | increased buyer power for retailers (L81) |