Slotting Allowances and the Market for New Products
Slotting allowances are fixed fees paid to retailers by manufacturers in return for stocking new products on a trial basis. While slotting allowances emerged over 10 years ago, there is still no consensus on what purpose the fees serve. This article shows that slotting allowances are consistent with competitive behavior and could have been caused by an increase in the supply of products. A consumer search cost model predicts that when an increase in the supply of products is not accompanied by an increase in sales per store, the equilibrium slotting allowance will increase. The implications of the model are supported by trends in new-product activity, sales per store, and prices in the grocery industry. Anticompetitive explanations for slotting allowances are refuted by the trends in retailer and manufacturer profits and prices. Copyright 1997 by the University of Chicago.
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- Landes, William M & Posner, Richard A, 1987. "Trademark Law: An Economic Perspective," Journal of Law and Economics, University of Chicago Press, vol. 30(2), pages 265-309, October.
- Greg Shaffer, 1991. "Slotting Allowances and Resale Price Maintenance: A Comparison of Facilitating Practices," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 120-135, Spring.
- Rao, Vithala R. & McLaughlin, Edward W., 1988. "Modeling the Decision to Add New Products by Channel Intermediaries," Working Papers 178699, Cornell University, Department of Applied Economics and Management.
- Wujin Chu, 1992. "Demand Signalling and Screening in Channels of Distribution," Marketing Science, INFORMS, vol. 11(4), pages 327-347.
- Ehrlich, Isaac & Fisher, Lawrence, 1982. "The Derived Demand for Advertising: A Theoretical and Empirical Investigation," American Economic Review, American Economic Association, vol. 72(3), pages 366-388, June.
- Paul R. Messinger & Chakravarthi Narasimhan, 1995. "Has Power Shifted in the Grocery Channel?," Marketing Science, INFORMS, vol. 14(2), pages 189-223.
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