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Assessing Supermarket Product-Line Decisions: The Impact of Slotting Fees

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  • Guillermo Israilevich

Abstract

In this paper, I estimate a structural demand model for a product category in a supermarket chain. I use the model to infer manufacturers' side payments to obtain shelf access in the supermarket and I estimate the impact of these fees on product assortment. The results suggest that the supermarket carries some unprofitable products. Instead of eliminating them, it charges slotting fees to the manufacturers of those products. Since the absence of slotting fees would lead the retailer to discontinue some products, this paper argues that forbidding slotting fees would harm consumers. Welfare calculations reveal that product assortment in this market is close to socially optimal. Copyright Kluwer Academic Publishers 2004

Suggested Citation

  • Guillermo Israilevich, 2004. "Assessing Supermarket Product-Line Decisions: The Impact of Slotting Fees," Quantitative Marketing and Economics (QME), Springer, vol. 2(2), pages 141-167, June.
    • Handle: RePEc:kap:qmktec:v:2:y:2004:i:2:p:141-167
    DOI: 10.1023/B:QMEC.0000027776.36766.e4
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    Cited by:

    1. Amit Gandhi Gandhi & Zhentong Lu & Xiaoxia Shi, 2013. "Estimating demand for differentiated products with error in market shares," CeMMAP working papers 03/13, Institute for Fiscal Studies.
    2. Wang, Jian-Cai & Lau, Amy Hing-Ling & Lau, Hon-Shiang, 2012. "Practical and effective contracts for the dominant retailer of a newsvendor product with price-sensitive demand," International Journal of Production Economics, Elsevier, vol. 138(1), pages 46-54.
    3. Pradeep K. Chintagunta & Harikesh S. Nair, 2011. "Structural Workshop Paper --Discrete-Choice Models of Consumer Demand in Marketing," Marketing Science, INFORMS, vol. 30(6), pages 977-996, November.
    4. Horrace, William & Huang, Rui & Perloff, Jeffrey, 2009. "Variety: Consumer Choice and Optimal Diversity," Research Reports 149942, University of Connecticut, Food Marketing Policy Center.
    5. Jean‐Pierre Dubé, 2005. "Product Differentiation and Mergers in the Carbonated Soft Drink Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(4), pages 879-904, December.
    6. Kusum Ailawadi & Eric Bradlow & Michaela Draganska & Vincent Nijs & Robert Rooderkerk & K. Sudhir & Kenneth Wilbur & Jie Zhang, 2010. "Empirical models of manufacturer-retailer interaction: A review and agenda for future research," Marketing Letters, Springer, vol. 21(3), pages 273-285, September.
    7. Leslie M. Marx & Greg Shaffer, 2010. "Slotting Allowances and Scarce Shelf Space," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 575-603, September.
    8. Inge Geyskens & Barbara Deleersnyder & Marnik G. Dekimpe & Didi Lin, 2024. "Do consumers benefit from national-brand listings by hard discounters?," Journal of the Academy of Marketing Science, Springer, vol. 52(1), pages 97-118, January.
    9. Bart J. Bronnenberg & Sanjay K. Dhar & Jean-Pierre H. Dubé, 2009. "Brand History, Geography, and the Persistence of Brand Shares," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 87-115, February.
    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. Rafael Becerril-Arreola & Randolph E. Bucklin & Raphael Thomadsen, 2021. "Effects of Income Distribution Changes on Assortment Size in the Mainstream Grocery Channel," Management Science, INFORMS, vol. 67(9), pages 5878-5900, September.
    12. Randal Watson, 2009. "Product Variety And Competition In The Retail Market For Eyeglasses," Journal of Industrial Economics, Wiley Blackwell, vol. 57(2), pages 217-251, June.

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