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Competing for shelf space

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  • Martinez de Albeniz, Victor

    ()
    (IESE Business School)

  • Roels, Guillaume

    (UCLA Anderson School of Management)

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    Abstract

    This paper studies competition for shelf space in a multi-supplier retail point. We consider a retailer that seeks to allocate her shelf space to maximize her profit. Because products associated with larger profit margin are granted more shelf space, suppliers can offer the retailer financial incentives to obtain larger space allocations. We analyze the competitive dynamics arising from the scarcity of space, and show existence and uniqueness of equilibrium. We then demonstrate that the inefficiencies from decentralizing decision-making are limited to 6% with wholesale-price contracts, and that full coordination can be achieved with pay-to-stay fee contracts. We finally investigate how competition is distorted under the practice of category management.

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    Bibliographic Info

    Paper provided by IESE Business School in its series IESE Research Papers with number D/717.

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    Length: 35 pages
    Date of creation: 15 Nov 2007
    Date of revision:
    Handle: RePEc:ebg:iesewp:d-0717

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    Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
    Web page: http://www.iese.edu/
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    Related research

    Keywords: Game theory; Supply chain competition; Price of Anarchy; Pricing; Supply contracts;

    This paper has been announced in the following NEP Reports:

    References

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    1. Andrew Lim & Brian Rodrigues & Xingwen Zhang, 2004. "Metaheuristics with Local Search Techniques for Retail Shelf-Space Optimization," Management Science, INFORMS, vol. 50(1), pages 117-131, January.
    2. Fernando Bernstein & Awi Federgruen, 2005. "Decentralized Supply Chains with Competing Retailers Under Demand Uncertainty," Management Science, INFORMS, vol. 51(1), pages 18-29, January.
    3. Yang, Ming-Hsien, 2001. "An efficient algorithm to allocate shelf space," European Journal of Operational Research, Elsevier, vol. 131(1), pages 107-118, May.
    4. Albert van Dijk & Harald J. van Heerde & Peter S.H. Leeflang & Dick R. Wittink, 2004. "Similarity-Based Spatial Methods to Estimate Shelf Space Elasticities," Quantitative Marketing and Economics, Springer, vol. 2(3), pages 257-277, 09.
    5. Yunzeng Wang & Yigal Gerchak, 2001. "Supply Chain Coordination when Demand Is Shelf-Space Dependent," Manufacturing & Service Operations Management, INFORMS, vol. 3(1), pages 82-87, August.
    6. Scott M. Carr & Uday S. Karmarkar, 2005. "Competition in Multiechelon Assembly Supply Chains," Management Science, INFORMS, vol. 51(1), pages 45-59, January.
    7. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
    8. Georgia Perakis & Guillaume Roels, 2007. "The Price of Anarchy in Supply Chains: Quantifying the Efficiency of Price-Only Contracts," Management Science, INFORMS, vol. 53(8), pages 1249-1268, August.
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