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One-stop shopping as a cause of slotting fees: A rent-shifting mechanism

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  • Caprice, Stéphane
  • von Schlippenbach, Vanessa

Abstract

Consumers increasingly prefer to bundle their purchases into a single shopping trip, inducing complementaries between initially independent or substitutable goods. Taking this one-stop shopping behavior into account, we show that slotting fees may emerge as a result of a rent-shifting mechanism in a three-party negotiation framework, where a monopolistic retailer negotiates sequentially with two suppliers about two-part tariff contracts. If the goods are initially independent or sufficiently differentiated, the wholesale price negotiated with the first supplier is upward distorted. This allows the retailer and the first supplier to extract rent from the second supplier. To compensate the retailer for the higher wholesale price, the first supplier pays a slotting fee as long as its bargaining power vis-à-vis the retailer is not too large. --

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Bibliographic Info

Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 97.

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Date of creation: 2013
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Handle: RePEc:zbw:dicedp:97

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Keywords: One-stop shopping; rent-shifting; slotting fees;

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References

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  1. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 625-652.
  2. Robert Marshall & Antonio Merlo, 1996. "Pattern bargaining," Staff Report, Federal Reserve Bank of Minneapolis 220, Federal Reserve Bank of Minneapolis.
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  4. Oystein Foros & Hans Jarle Kind & Jan Yngve Sand, 2008. "Slotting Allowances and Manufacturers’ Retail Sales Effort," CESifo Working Paper Series 2396, CESifo Group Munich.
  5. DeVuyst Cheryl S, 2005. "Demand Screening with Slotting Allowances and Failure Fees," Journal of Agricultural & Food Industrial Organization, De Gruyter, De Gruyter, vol. 3(2), pages 1-19, June.
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  8. Moller, Marc, 2007. "The timing of contracting with externalities," Journal of Economic Theory, Elsevier, Elsevier, vol. 133(1), pages 484-503, March.
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  14. Innes, Robert & Hamilton, Stephen F., 2006. "Naked slotting fees for vertical control of multi-product retail markets," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 24(2), pages 303-318, March.
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  16. Leslie M. Marx & Greg Shaffer, 1999. "Predatory Accommodation: Below-Cost Pricing without Exclusion in Intermediate Goods Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 22-43, Spring.
  17. Leslie M. Marx & Greg Shaffer, 2010. "Slotting Allowances and Scarce Shelf Space," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 19(3), pages 575-603, 09.
  18. Konrad Stahl, 1982. "Location and Spatial Pricing Theory with Nonconvex Transportation Cost Schedules," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(2), pages 575-582, Autumn.
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Citations

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Cited by:
  1. Haucap, Justus & Heimeshoff, Ulrich & Klein, Gordon J. & Rickert, Dennis & Wey, Christian, 2013. "Bargaining power in manufacturer-retailer relationships," DICE Discussion Papers 107, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. von Schlippenbach, Vanessa & Wey, Christian, 2011. "One-stop shopping behavior, buyer power, and upstream merger incentives," DICE Discussion Papers 27, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Aghadadashli, Hamid & Wey, Christian, 2014. "Multi-union bargaining: Tariff plurality and tariff competition," DICE Discussion Papers 138, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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