Competing for Shelf Space
IESE Business School - University of Navarra
University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area
January 1, 2011
Production and Operations Management, 20(1) 32-46. January/February 2011
In recent years, the competition for shelf space has intensified, as more products now compete for a retail space that has remained roughly constant. In this paper, we analyze the dynamics of this competition in a multi-supplier retail point. Assuming that sales are shelf space dependent, we consider a retailer that optimizes its shelf space allocation among different products based on their sales level and profit margins. In this context, product manufacturers set their wholesale prices so as to obtain larger shelf space allocations but at the same time keep margins as high as possible. We analyze the equilibrium situation in the supply chain, and find that generally the retailer's and the suppliers' incentives are misaligned, resulting in suboptimal retail prices and shelf space allocations. We however find that the inefficiencies induced by suboptimal shelf space allocation decisions are small relative to those induced by suboptimal pricing decisions.
Number of Pages in PDF File: 39
Keywords: Game theory, Supply chain competition, Price of Anarchy, Pricing, Supply contractsAccepted Paper Series
Date posted: January 27, 2010 ; Last revised: July 19, 2012
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