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Do slotting allowances reduce product variety?

Teis Lunde Lømo (), Frode Meland () and Håvard Mork Sandvik ()
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Teis Lunde Lømo: University of Bergen, Department of Economics, Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Frode Meland: University of Bergen, Department of Economics, Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway, https://www.uib.no/en/persons/Frode.Meland
Håvard Mork Sandvik: Norwegian Competition Authority

No 7/20, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: Slotting allowances are lump-sum fees paid by manufacturers in return for retail shelf space. We present a novel mechanism by which such upfront payments facilitate vertical foreclosure and thereby reduce product variety. When bidding for the patronage of two retailers, one manufacturer may foreclose a symmetric rival by offering slotting allowances paired with per-unit input prices that offset downstream competition ex post. Contrary to the conventional wisdom, slotting allowances can exclude first-rate brands of powerful manufacturers. Our results are in line with recent empirical evidence on slotting allowances but cast doubt on the current policy approach to these payments.

Keywords: vertically related markets; slotting allowances; product variety; vertical foreclosure; exclusion; antitrust policy (search for similar items in EconPapers)
JEL-codes: L13 L14 L42 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2020-10-30
New Economics Papers: this item is included in nep-com and nep-ind
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