Abstract

http://ssrn.com/abstract=1657214
 
 

References (62)



 
 

Citations (12)



 


 



The Economics of Slotting Contracts


Joshua D. Wright


Federal Trade Commission; George Mason University School of Law

Benjamin Klein


University of California, Los Angeles (UCLA) - Department of Economics; Compass Lexecon

2007

Journal of Law and Economics, Vol. 50, August 2007

Abstract:     
Slotting fees, per-unit-time payments made by manufacturers to retailers for shelf space, have become increasingly prevalent in grocery retailing. Shelf space contracts are shown to be a consequence of the normal competitive process when retailer shelf space is promotional, in the sense that the shelf space induces profitable incremental individual manufacturer sales without drawing customers from competing stores. In these circumstances, retailer and manufacturer incentives do not coincide with regard to the provision of promotional shelf space, and manufacturers must enter shelf space contracts with retailers. Retailers are compensated for supplying promotional shelf space at least partially with a per unit-time slotting fee when inter-retailer price competition on the particular product makes compensation with a lower wholesale price a more costly way to generate equilibrium retailer shelf space rents. Our theory implies that slotting will be positively related to manufacturer incremental profit margins, a fact that explains both the growth and the incidence across products of slotting contracts in grocery retailing.

Number of Pages in PDF File: 34

JEL Classification: L42, K21

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Date posted: July 9, 2011  

Suggested Citation

Wright, Joshua D. and Klein, Benjamin, The Economics of Slotting Contracts (2007). Journal of Law and Economics, Vol. 50, August 2007. Available at SSRN: http://ssrn.com/abstract=1657214

Contact Information

Joshua D. Wright
Federal Trade Commission ( email )
601 New Jersey Ave., NW
Washington, DC 20580
United States
George Mason University School of Law ( email )
3301 Fairfax Drive
Arlington, VA 22201
United States
Benjamin Klein (Contact Author)
University of California, Los Angeles (UCLA) - Department of Economics ( email )
1999 Avenue of the Stars
Suite 2500
Los Angeles, CA 90067-6028
United States
310-728-2025 (Phone)
310-728-2070 (Fax)
HOME PAGE: http://www.econ.ucla.edu/people/Faculty/Klein.html
Compass Lexecon ( email )
1999 Avenue of the Stars
Suite 1150
Los Angeles, CA 90067-4628
United States
310-728-2025 (Phone)
310-728-2070 (Fax)
HOME PAGE: http://www.compasslexecon.com/professionals/bio?id=152
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