IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpio/0411009.html
   My bibliography  Save this paper

Slotting Allowances and Retailer Market Power

Author

Listed:
  • Hao Wang

    (China Center for Economic Research)

Abstract

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.

Suggested Citation

  • Hao Wang, 2004. "Slotting Allowances and Retailer Market Power," Industrial Organization 0411009, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0411009
    Note: Type of Document - pdf; pages: 23
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0411/0411009.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Caillaud, Bernard & Jullien, B & Picard, P, 1995. "Competing Vertical Structures: Precommitment and Renegotiation," Econometrica, Econometric Society, vol. 63(3), pages 621-646, May.
    4. 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.
    5. Wujin Chu, 1992. "Demand Signalling and Screening in Channels of Distribution," Marketing Science, INFORMS, vol. 11(4), pages 327-347.
    6. 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 461-493, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lau, Amy Hing Ling & Lau, Hon-Shiang & Wang, Jian-Cai, 2008. "How a dominant retailer might design a purchase contract for a newsvendor-type product with price-sensitive demand," European Journal of Operational Research, Elsevier, vol. 190(2), pages 443-458, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hao Wang, 2006. "Slotting allowances and retailer market power," Journal of Economic Studies, Emerald Group Publishing, vol. 33(1), pages 68-77, January.
    2. Benjamin Klein & Joshua D. Wright, 2007. "The Economics of Slotting Contracts," Journal of Law and Economics, University of Chicago Press, vol. 50(3), pages 421-454.
    3. Hamilton, Stephen F. & Bontems, Philippe & Lepore, Jason, 2015. "Oligopoly intermediation, relative rivalry and market conduct," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 49-59.
    4. Øystein Foros & Hans Jarle Kind, 2008. "Do Slotting Allowances Harm Retail Competition?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 367-384, June.
    5. Tirtha Dhar, 2013. "Can Margin Differences in Vertical Marketing Channels Lead to Contracts with Slotting Fees?," Management Science, INFORMS, vol. 59(12), pages 2766-2771, December.
    6. Stéphane Caprice & Vanessa von Schlippenbach, 2013. "One‐Stop Shopping as a Cause of Slotting Fees: A Rent‐Shifting Mechanism," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 468-487, September.
    7. Warneryd, Karl, 2000. "In Defense of Lawyers: Moral Hazard as an Aid to Cooperation," Games and Economic Behavior, Elsevier, vol. 33(1), pages 145-158, October.
    8. Innes, Robert & Hamilton, Stephen F., 2006. "Naked slotting fees for vertical control of multi-product retail markets," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 303-318, March.
    9. Søren Bo Nielsen & Pascalis Raimondos–Møller & Guttorm Schjelderup, 2003. "Formula Apportionment and Transfer Pricing under Oligopolistic Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 419-437, April.
    10. Kohler, Philippe & O. Moore, Michael, 2003. "Domestic Welfare Effects of Foreign Strategic Trade Policies," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 18, pages 573-586.
    11. Steve McCorriston, 2002. "Why should imperfect competition matter to agricultural economists?," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 29(3), pages 349-371, July.
    12. Sheldon, Ian M., 2017. "The Competitiveness Of Agricultural Product And Input Markets: A Review And Synthesis Of Recent Research," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 49(1), pages 1-44, February.
    13. Fangruo Chen, 2007. "Auctioning Supply Contracts," Management Science, INFORMS, vol. 53(10), pages 1562-1576, October.
    14. S. Lael Brainard & David Martimort, 1996. "Strategic Trade Policy Design with Asymmetric Information and Public Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(1), pages 81-105.
    15. Geng, Qin & Minutolo, Marcel C., 2010. "Failure fee under stochastic demand and information asymmetry," International Journal of Production Economics, Elsevier, vol. 128(1), pages 269-279, November.
    16. 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.
    17. Dmitri Kuksov & Amit Pazgal, 2007. "Research Note—The Effects of Costs and Competition on Slotting Allowances," Marketing Science, INFORMS, vol. 26(2), pages 259-267, 03-04.
    18. Kim, Jaesoo, 2012. "Endogenous leadership in incentive contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 256-266.
    19. Claire Chambolle & Clémence Christin, 2021. "New Product Introduction and Slotting Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 69(2), pages 410-442, June.
    20. Esther Gal‐Or, 1997. "Multiprincipal Agency Relationships as Implied by Product Market Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 235-256, June.

    More about this item

    Keywords

    Exclusionary strategy; Market power; Slotting allowance;
    All these keywords.

    JEL classification:

    • L - Industrial Organization

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpio:0411009. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA The email address of this maintainer does not seem to be valid anymore. Please ask EconWPA to update the entry or send us the correct address (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.