Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance

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.