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Slotting Allowances and Manufacturers’ Retail Sales Effort

Author

Listed:
  • Øystein Foros

    () (Norwegian School of Economics and Business Administration, Helleveien 30, N-5045 Bergen, Norway)

  • Hans Jarle Kind

    () (Norwegian School of Economics and Business Administration, Helleveien 30, N-5045 Bergen, Norway)

  • Jan Yngve Sand

    () (University of Tromsø, Department of Economics and Management, N-9037 Tromsø, Norway)

Abstract

A manufacturer’s incentives to undertake noncontractible investments depend on the profit margin on her sales to the retailer, and slotting allowances can facilitate such incentives by increasing unit wholesale prices. At first glance it is tempting to conclude that slotting allowances should be particularly prevalent for product categories where the manufacturer’s scope for undertaking noncontractible sales effort is relatively large. At odds with this, the Federal Trade Commission (FTC) among other organizations, reports that slotting allowances are more commonly used for product categories where the scope for noncontractible effort by the manufacturer is presumably relatively small. To scrutinize this puzzle we set up a simple model with one manufacturer and one retailer, where the manufacturer undertakes noncontractible demand-enhancing investments. The predictions from the model are consistent with market observations.

Suggested Citation

  • Øystein Foros & Hans Jarle Kind & Jan Yngve Sand, 2009. "Slotting Allowances and Manufacturers’ Retail Sales Effort," Southern Economic Journal, Southern Economic Association, vol. 76(1), pages 266-282, July.
  • Handle: RePEc:sej:ancoec:v:76:1:y:2009:p:266-282
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    File URL: http://dx.doi.org/10.4284/sej.2009.76.1.266
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    References listed on IDEAS

    as
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    Cited by:

    1. Pfeiffer, Thomas, 2016. "A comparison of simple two-part supply chain contracts," International Journal of Production Economics, Elsevier, vol. 180(C), pages 114-124.
    2. Claire Chambolle & Clémence Christin, 2017. "New Product Introduction and Slotting Fees," Working Papers hal-01458949, HAL.
    3. Chris Doyle & Martijn A. Han, 2012. "Cartelization Through Buyer Groups," SFB 649 Discussion Papers SFB649DP2012-059, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Stéphane Caprice & Vanessa 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.
    5. 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.
    6. Ma, Peng & Wang, Haiyan & Shang, Jennifer, 2013. "Contract design for two-stage supply chain coordination: Integrating manufacturer-quality and retailer-marketing efforts," International Journal of Production Economics, Elsevier, vol. 146(2), pages 745-755.

    More about this item

    JEL classification:

    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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