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Research Note—The Effects of Costs and Competition on Slotting Allowances

Author

Listed:
  • Dmitri Kuksov

    () (Washington University in St. Louis, One Brookings Drive, St. Louis, Missouri 63130-4899)

  • Amit Pazgal

    () (Rice University, 6100 Main Street, Houston, Texas 77005)

Abstract

We consider the optimal two-part tariff contract between a manufacturer and a retailer. We show that retail competition (in the presence of either fixed costs or bargaining power) may lead to slotting allowances in an optimal contract, even with a monopoly manufacturer and no information asymmetry. On the other hand, slotting allowances do not arise with a monopoly retailer and no information asymmetry, whether the manufacturer is a monopoly or not. We also show that more intense retail competition, higher retail bargaining power, larger retailer fixed costs, lower marginal costs of retailing, as well as larger relative retailer size (whether coming from a location or operating advantage), have a positive impact on the incidence and the magnitude of slotting allowances. The opposing effects of the fixed and marginal operating costs on slotting allowances, as well as the impact of competition and bargaining power on profits, underscore the importance of careful definitions of these variables in empirical research.

Suggested Citation

  • Dmitri Kuksov & Amit Pazgal, 2007. "Research Note—The Effects of Costs and Competition on Slotting Allowances," Marketing Science, INFORMS, vol. 26(2), pages 259-267, 03-04.
  • Handle: RePEc:inm:ormksc:v:26:y:2007:i:2:p:259-267
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    File URL: http://dx.doi.org/10.1287/mksc.1060.0206
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Gérard P. Cachon & A. Gürhan Kök, 2010. "Competing Manufacturers in a Retail Supply Chain: On Contractual Form and Coordination," Management Science, INFORMS, vol. 56(3), pages 571-589, March.
    2. Tony Haitao Cui & Jagmohan S. Raju & Z. John Zhang, 2008. "A Price Discrimination Model of Trade Promotions," Marketing Science, INFORMS, vol. 27(5), pages 779-795, 09-10.
    3. Ganesh Iyer & Chakravarthi Narasimhan & Rakesh Niraj, 2007. "Information and Inventory in Distribution Channels," Management Science, INFORMS, vol. 53(10), pages 1551-1561, October.
    4. Desmond (Ho-Fu) Lo & Stephen W. Salant, 2016. "The strategic use of early bird discounts for dealers," Quantitative Marketing and Economics (QME), Springer, vol. 14(2), pages 97-127, June.
    5. Yaron Yehezkel, 2014. "Motivating a Supplier to Test Product Quality," Journal of Industrial Economics, Wiley Blackwell, vol. 62(2), pages 309-345, June.
    6. Yan, Xinghao & Zhao, Hui, 2015. "Inventory sharing and coordination among n independent retailers," European Journal of Operational Research, Elsevier, vol. 243(2), pages 576-587.
    7. Abel P. Jeuland & Steven M. Shugan, 2008. "Commentary—Managing Channel Profits," Marketing Science, INFORMS, vol. 27(1), pages 49-51, 01-02.
    8. repec:kap:qmktec:v:15:y:2017:i:2:d:10.1007_s11129-017-9182-0 is not listed on IDEAS
    9. Adib Bagh & Hemant K. Bhargava, 2013. "How to Price Discriminate When Tariff Size Matters," Marketing Science, INFORMS, vol. 32(1), pages 111-126, August.
    10. Øystein Foros & Kåre P. Hagen & Hans Jarle Kind, 2009. "Price-Dependent Profit Sharing as a Channel Coordination Device," Management Science, INFORMS, vol. 55(8), pages 1280-1291, August.
    11. repec:kap:qmktec:v:15:y:2017:i:3:d:10.1007_s11129-017-9185-x is not listed on IDEAS
    12. Geng, Qin & Minutolo, Marcel C., 2010. "Failure fee under stochastic demand and information asymmetry," International Journal of Production Economics, Elsevier, vol. 128(1), pages 269-279, November.
    13. Yan, Xinghao & Zaric, Gregory S., 2016. "Families of supply chain coordinating contracts in the presence of retailer effort," International Journal of Production Economics, Elsevier, vol. 175(C), pages 213-225.
    14. repec:eee:transe:v:106:y:2017:i:c:p:255-275 is not listed on IDEAS

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