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Demand Screening with Slotting Allowances and Failure Fees

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  • DeVuyst Cheryl S

    (North Dakota State University)

Abstract

In the presence of scarce shelf space, retail grocers face the proliferation of new products and high failure rates. Accurately predicting the demand for a new product becomes increasingly difficult for retailers as the number of product offerings increases. This study explores slotting allowances and failure fees as mechanisms to screen new products' demand distributions. Mechanism design framework and two moments of the product demand distribution are utilized to eliminate mean-variance dominated products and separate non-dominated products by their demand distributions. Model results suggest that accurately designed menus of contracts including retail prices, slotting allowances, failure fees (or success rebates) and sales targets can separate products by their demand distributions and alleviate asymmetric information problems.

Suggested Citation

  • DeVuyst Cheryl S, 2005. "Demand Screening with Slotting Allowances and Failure Fees," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 3(2), pages 1-19, June.
    • Handle: RePEc:bpj:bjafio:v:3:y:2005:i:2:n:5
    DOI: 10.2202/1542-0485.1076
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    References listed on IDEAS

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    1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
    2. Edward W. McLaughlin & Vithala R. Rao, 1990. "The Strategic Role of Supermarket Buyer Intermediaries in New Product Selection: Implications for Systemwide Efficiency," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(2), pages 358-370.
    3. DeVuyst, Cheryl Sinn, 2002. "Non-Credible Information Flows Between Food Manufacturers And Retailers," Journal of Food Distribution Research, Food Distribution Research Society, vol. 33(3), pages 1-7, November.
    4. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-855, September.
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    Cited by:

    1. von Schlippenbach, Vanessa, 2007. "REGALMIETEN UND DIE EFFIZIENZ VON ZULIEFERERVERTRAGEN (German)," 47th Annual Conference, Weihenstephan, Germany, September 26-28, 2007 7609, German Association of Agricultural Economists (GEWISOLA).
    2. Stéphane Caprice & Vanessa von Schlippenbach, 2013. "One‐Stop Shopping as a Cause of Slotting Fees: A Rent‐Shifting Mechanism," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 468-487, September.
    3. Sheldon, Ian M., 2017. "The Competitiveness Of Agricultural Product And Input Markets: A Review And Synthesis Of Recent Research," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 49(1), pages 1-44, February.

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