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Do Slotting Allowances Harm Retail Competition?

  • Oystein Foros
  • Hans Jarle Kind

Slotting allowances are fees paid by manufacturers to get access to retailers’ shelf space. Both in the USA and Europe, the use of slotting allowances has attracted attention in the general press as well as among policy makers and economists. One school of thought claims that slotting allowances are efficiency enhancing, while another school of thought maintains that slotting allowances are used in an anti-competitive manner. In this paper, we argue that this controversy is partially caused by inadequate assumptions of how the retail market is structured and organized. Using a formal model, we show that there are good reasons to expect anti-competitive effects of slotting allowances. We further point out that competition authorities tend to use an unsatisfactory basis for comparison when analyzing welfare consequences of slotting allowances.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1800.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1800
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  1. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  2. Rey, Patrick & Stiglitz, Joseph, 1988. "Vertical restraints and producers' competition," European Economic Review, Elsevier, vol. 32(2-3), pages 561-568, March.
  3. repec:ccp:journl:v:54:y:2003:i:1:p:111-125 is not listed on IDEAS
  4. Irmen, Andreas, 1998. " Precommitment in Competing Vertical Chains," Journal of Economic Surveys, Wiley Blackwell, vol. 12(4), pages 333-59, September.
  5. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 133-164, 04.
  6. Guttorm Schjelderup & Lars Sorgard, 1997. "Transfer Pricing as a Strategic Device for Decentralized Multinationals," International Tax and Public Finance, Springer, vol. 4(3), pages 277-290, July.
  7. Sullivan, Mary W, 1997. "Slotting Allowances and the Market for New Products," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 461-93, October.
  8. Preyas S. Desai, 2000. "Multiple Messages to Retain Retailers: Signaling New Product Demand," Marketing Science, INFORMS, vol. 19(4), pages 381-389, August.
  9. Martin A. Lariviere & V. Padmanabhan, 1997. "Slotting Allowances and New Product Introductions," Marketing Science, INFORMS, vol. 16(2), pages 112-128.
  10. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
  11. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Gal-Or, Esther, 1991. "Duopolistic vertical restraints," European Economic Review, Elsevier, vol. 35(6), pages 1237-1253, August.
  13. Patrick Rey & Jeanine Thal & Thibaud Vergé, 2006. "Slotting Allowances and Conditional Payments," Working Papers 2006-23, Centre de Recherche en Economie et Statistique.
  14. repec:cup:cbooks:9780521016919 is not listed on IDEAS
  15. Akshay R. Rao & Humaira Mahi, 2003. "The Price of Launching a New Product: Empirical Evidence on Factors Affecting the Relative Magnitude of Slotting Allowances," Marketing Science, INFORMS, vol. 22(2), pages 246-268, January.
  16. Shaffer Greg, 2005. "Slotting Allowances and Optimal Product Variety," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-28, June.
  17. repec:cup:cbooks:9780521816632 is not listed on IDEAS
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