Working Paper: CEPR ID: DP8029
Authors: Cline Bonnet; Pierre Dubois
Abstract: We present the first empirical estimation of a structural model taking into account explicitly the endogenous buyer power of downstream players facing two part tariffs contracts offered by the upstream level. We consider vertical contracts between manufacturers and retailers where resale price maintenance may be used with two part tariffs and allow retailers to have some endogenous buyer power from the horizontal competition of manufacturers. Our contribution allows to recover price-cost margins at the upstream and downstream levels in these different structural models using the industry structure and estimates of demand parameters. We apply it to the market of bottled water in France, estimating a mixed logit demand model on individual level data. Empirical evidence shows that two part tariffs contracts are used with no resale price maintenance and that the buyer power of supermarket chains is endogenous to the structure of manufacturers competition.
Keywords: competition; differentiated products; double marginalization; endogenous buyer power; manufacturers; mixed logit; non nested tests; retailers; two part tariffs; vertical contracts; water
JEL Codes: C12; C33; L13; L18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| two-part tariffs contracts (L14) | price-cost margins (D40) |
| competition among manufacturers (L11) | buyer power of retailers (L81) |
| buyer power of retailers (L81) | pricing strategies (D49) |
| competition among manufacturers (L11) | pricing strategies (D49) |