Nash-in-Nash Bargaining with Price-Setting Firms: Contracts, Profits, and the Role of Slotting Fees

Øystein Foros (), Hans Jarle Kind () and Greg Shaffer ()
Additional contact information
Øystein Foros: Dept. of Business and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/oystein-foros/
Hans Jarle Kind: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/hans-jarle-kind/
Greg Shaffer: Simon Business School, University of Rochester, Postal: University of Rochester, Simon Business School, 500 Wilson Blvd, Rochester, NY 14627, The United States of America, https://sites.google.com/view/greg-shaffer

No 17/2025, Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics

Abstract: This paper uses a Nash-in-Nash bargaining framework to consider why suppliers and retailers sometimes prefer to negotiate over linear contracts rather than over more sophisticated contracts such as two-part tariffs, and why, when they do negotiate over more sophisticated contracts, we often see negative fixed fees (slotting fees). We compare profits under the two forms of contracts and find under weak conditions that when negative fixed fees would arise in the case of two-part tari↵s, at least one side and often both sides will prefer this outcome to the outcome that would arise with linear contracts. In contrast, the opposite holds when positive fixed fees would arise in the case of two-part tariffs. Using linear demands, we demonstrate that retailers always favor negotiating over two-part tariffs when the fixed fees are negative, and prefer linear contracts when the fixed fees are positive. Suppliers generally share these preferences, unless they possess particularly strong bargaining power relative to retailers. Our findings have implications for retailer buyer power and are broadly consistent with stylized facts from the U.S. grocery industry.

Keywords: Nash-in-Nash bargaining; Two-part tariffs; Linear contracts; Slotting fees; Retailer buyer power (search for similar items in EconPapers)
JEL-codes: D04 L50 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2025-08-17
References: Add references at CitEc
Citations:

Downloads: (external link)
https://openaccess.nhh.no/nhh-xmlui/handle/11250/3213076 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:nhheco:2025_017

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway. Contact information at EDIRC.
Bibliographic data for series maintained by Synne Stormoen ().