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Slotting Allowances as Real Options: An Alternative Explanation

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  • Timothy J. Richards

    (Arizona State University)

Abstract

This article offers an alternative explanation for slotting allowances using contingent claims analysis, or real option pricing. Slotting allowances arise because retailers hold call options on their shelf space while suppliers must buy these options to introduce a new product. A simulated model of new-product introduction shows that stocking a new product contains a significant, imbedded real option component. We also show that advertising and promotional support can reduce the real option value.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 77 (2004)
Issue (Month): 4 (October)
Pages: 675-696

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Handle: RePEc:ucp:jnlbus:v:77:y:2004:i:4:p:675-696

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Sandri, Serena & Schade, Christian & Mußhoff, Oliver & Odening, Martin, 2010. "Holding on for too long? An experimental study on inertia in entrepreneurs' and non-entrepreneurs' disinvestment choices," Journal of Economic Behavior & Organization, Elsevier, vol. 76(1), pages 30-44, October.
  2. Geng, Qin & Minutolo, Marcel C., 2010. "Failure fee under stochastic demand and information asymmetry," International Journal of Production Economics, Elsevier, vol. 128(1), pages 269-279, November.
  3. Innes, Robert & Hamilton, Stephen F., 2006. "Naked slotting fees for vertical control of multi-product retail markets," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 303-318, March.

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