Inference on vertical contracts between Manufacturers and retailers allowing for non linear pricing and rResale price maintenance

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 twopart 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.

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