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Slotting Allowances and Conditional Payments

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Author Info

  • Patrick Rey

    (Crest)

  • Jeanine Thal

    (Crest)

  • Thibaud Vergé

    (Crest)

Abstract

We analyze the competitive effects of upfront payments made by manufacturers to retailersin a contracting situation where rival retailers offer contracts to a manufacturer. In contrast toBernheim and Whinston (1985, 1998), who study the situation in which competing manufacturersoffer contracts to a common retailer, we find that two-part tariffs (even if contingent onexclusivity or not) do not suffice to implement the monopoly outcome. More complex arrangementsare required to internalize all the contracting externalities. The retailers can for exampleachieve the monopoly outcome through (contingent) three-part tariffs that combine slotting allowances(i.e., upfront payments by the manufacturer) with two-part tariffs where the fees areconditional on actual trade. The welfare implications are ambiguous. On the one hand, slottingallowances ensure that no efficient retailer is excluded. On the other hand, they allow firms tomaintain monopoly prices in a common agency situation. Simulations suggest that the lattereffect is more significant.

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Bibliographic Info

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2006-23.

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Length: 39
Date of creation: 2006
Date of revision:
Handle: RePEc:crs:wpaper:2006-23

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Cited by:
  1. Rey, Patrick & Tirole, Jean, 2003. "A Primer on Foreclosure," IDEI Working Papers 203, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2005.
  2. Battigalli, Pierpaulo & Fumagalli, Chiara & Polo, Michele, 2006. "Buyer Power and Quality Improvements," CEPR Discussion Papers 5814, C.E.P.R. Discussion Papers.
  3. Oystein Foros & Hans Jarle Kind, 2006. "Do Slotting Allowances Harm Retail Competition?," CESifo Working Paper Series 1800, CESifo Group Munich.
  4. Horst Raff & Nicolas Schmitt, 2008. "Buyer Power in International Markets," Kiel Working Papers 1431, Kiel Institute for the World Economy.
  5. Stéphane Caprice, 2006. "Multilateral Vertical Contracting with an Alternative Supply: The Welfare Effects of a Ban on Price Discrimination," Review of Industrial Organization, Springer, vol. 28(1), pages 63-80, 02.

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