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Slotting allowances and retail product variety under oligopoly

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  • Hamilton, Stephen
  • Innes, Robert

Abstract

Slotting fees are lump-sum charges paid by manufacturers to retailers for shelf space. In this letter we examine the strategic effect of slotting allowances on product variety. In a spatial model where consumers each have unit demand for their preferred product variant and retailers jointly select prices and product variety, we show that variety is (1) under-provided without slotting contracts and (2) efficiently supplied under equilibrium slotting fees.

Suggested Citation

  • Hamilton, Stephen & Innes, Robert, 2017. "Slotting allowances and retail product variety under oligopoly," Economics Letters, Elsevier, vol. 158(C), pages 34-36.
    • Handle: RePEc:eee:ecolet:v:158:y:2017:i:c:p:34-36
    DOI: 10.1016/j.econlet.2017.06.033
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    References listed on IDEAS

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    1. Jeanine Miklós‐Thal & Patrick Rey & Thibaud Vergé, 2011. "Buyer Power And Intrabrand Coordination," Journal of the European Economic Association, European Economic Association, vol. 9(4), pages 721-741, August.
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    10. Leslie M. Marx & Greg Shaffer, 2007. "Upfront payments and exclusion in downstream markets," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 823-843, September.
    11. Daniel P. O'Brien & Greg Shaffer, 1997. "Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 755-785, December.
    12. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
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    Cited by:

    1. Lømo, Teis Lunde & Meland, Frode & Sandvik, Håvard Mork, 2020. "Do slotting allowances reduce product variety?," Working Papers in Economics 7/20, University of Bergen, Department of Economics.
    2. Mouzas, Stefanos & Bauer, Florian, 2022. "Rethinking business performance in global value chains," Journal of Business Research, Elsevier, vol. 144(C), pages 679-689.
    3. Hirsch, Stefan & Koppenberg, Maximilian, 2020. "Power imbalances in French food retailing: Evidence from a production function approach to estimate market power," Economics Letters, Elsevier, vol. 194(C).

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    More about this item

    Keywords

    Slotting fees; Vertical contracts; Product variety; Oligopoly;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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