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Slotting Allowances as a Facilitating Practice by Food Processors in Wholesale Grocery Markets: Profitability and Welfare Effects

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  • Stephen F. Hamilton

Abstract

Slotting allowances, which are lump-sum transfers paid by food manufacturers to grocery retailers in return for various retail concessions, are becoming increasingly common in wholesale grocery markets. This article extends the literature on slotting allowances by considering two features that previously have been ignored: the role of food processors in determining these pricing arrangements, and the effect of slotting allowances on the size and distribution of economic surplus. Slotting allowances motivated by food processors increase procurement quantities and farm prices, and this raises farm surplus, increases total producer surplus, and improves consumer welfare in the food system. Copyright 2003, Oxford University Press.

Suggested Citation

  • Stephen F. Hamilton, 2003. "Slotting Allowances as a Facilitating Practice by Food Processors in Wholesale Grocery Markets: Profitability and Welfare Effects," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 797-813.
  • Handle: RePEc:oup:ajagec:v:85:y:2003:i:4:p:797-813
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    File URL: http://hdl.handle.net/10.1111/1467-8276.00489
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    Cited by:

    1. Maratou, Laoura & Gomez, Miguel I. & Just, David R., 2004. "Market Power And Off-Invoice Trade Promotions In The Us: An Empirical Investigation," 2004 Annual meeting, August 1-4, Denver, CO 20280, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Valeria Sodano, 2006. "Power and the Analysis of the Food System," Department of Economics University of Siena 478, Department of Economics, University of Siena.
    3. Gomez, Miguel I. & Rao, Vithala R. & Yuan, Hong, 2008. "Effects of Horizontal and Vertical Market Power on Trade Promotion Budget and Allocation in the US Supermarket Industry: An Experimental and Empirical Analysis," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6247, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Gomez, Miguel I. & Rao, Vithala R. & Yuan, Hong, 2009. "A Market Experiment on Trade Promotion Budget and Allocation," Working Papers 55928, Cornell University, Department of Applied Economics and Management.
    5. Innes, Robert & Hamilton, Stephen F., 2006. "Naked slotting fees for vertical control of multi-product retail markets," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 303-318, March.
    6. 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.
    7. Jon H. Hanf & Rainer Kühl, 2005. "Branding and its consequences for German agribusiness," Agribusiness, John Wiley & Sons, Ltd., vol. 21(2), pages 177-189.

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