Competing for shelf space
AbstractThis 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 InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/717.
Length: 35 pages
Date of creation: 15 Nov 2007
Date of revision:
Game theory; Supply chain competition; Price of Anarchy; Pricing; Supply contracts;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-09 (All new papers)
- NEP-COM-2008-02-09 (Industrial Competition)
- NEP-MIC-2008-02-09 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
- 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.
- Fernando Bernstein & Awi Federgruen, 2005. "Decentralized Supply Chains with Competing Retailers Under Demand Uncertainty," Management Science, INFORMS, vol. 51(1), pages 18-29, January.
- 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.
- Yang, Ming-Hsien, 2001. "An efficient algorithm to allocate shelf space," European Journal of Operational Research, Elsevier, vol. 131(1), pages 107-118, May.
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