Slotting Allowances and Retailer Market Power
This paper uses a bilateral oligopoly model to study the slotting allowances in retailing industries. There are two symmetric manufacturers competing in the upstream market. In the downstream, there are a large retailer with considerable market share, and many small retailers with insignificant market shares. Suppose that only the large retailer is able to require slotting allowances. The retailers engage in price competition with spatial differentiation. The model suggests that the large retailer uses slotting allowances to capitalize its market power. By requiring slotting fees, the large retailer can raise the wholesale prices faced by the competing small retailers, and therefore lower their profit margins and market shares. The large retailer, on the contrary, achieves greater profit margins and market share. The lump sum part of the slotting fees is wholly bore by the manufacturers. But the slotting fees that are linear to the sales are actually bore by the competing small retailers and their customers. In this sense, requiring slotting allowance is an exclusionary strategy of the large retailer.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rennhoff, Adam D., 2004. "Paying For Shelf Space: An Investigation Of Merchandising Allowances In The Grocery Industry," Research Reports 25155, University of Connecticut, Food Marketing Policy Center.
- Caillaud Bernard & Jullien Bruno & Picard Pierre, 1991.
"Competing vertical structures : precommitment and renegotiation,"
CEPREMAP Working Papers (Couverture Orange)
- Caillaud, Bernard & Jullien, B & Picard, P, 1995. "Competing Vertical Structures: Precommitment and Renegotiation," Econometrica, Econometric Society, vol. 63(3), pages 621-46, May.
- 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.
- Wujin Chu, 1992. "Demand Signalling and Screening in Channels of Distribution," Marketing Science, INFORMS, vol. 11(4), pages 327-347.
- Adam D. Rennhoff, 2004. "Paying For Shelf Space: An Investigation Of Merchandising Allowances In The Grocery Industry," Food Marketing Policy Center Research Reports 084, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
- Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpio:0411009. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.