Naked slotting fees for vertical control of multi-product retail markets

Abstract

Slotting fees are fixed charges paid by food manufacturers to retailers for access to the retail market. This note considers this practice in the context of multi-product markets with imperfectly competitive retailers, a monopoly supplier of one good, and competitive suppliers of other goods. We show how the monopolist and the retailers can use bnakedQ slotting fees-charges imposed on the suppliers of other goods-to obtain vertically integrated monopoly profits.

Excise Taxes with Multiproduct Transactions

“…As in the spatial duopoly model of Robert Innes and Stephen F. Hamilton (2006), consumers purchase multiple products on each shopping occasion.…”

Vertical collusion

“…Bonanno and Vickers (1988) find that suppliers can use two‐part tariffs that include a wholesale price above marginal cost in order to relax downstream competition, and a positive fixed fee, to collect the retailers' profits. In Shaffer (1991), and Shaffer (2005), Innes and Stephen (2006), Rey, Miklós‐Thal, and Verge (2011), and Rey and Whinston (2012), retailers have buyer power, hence, two‐part tariffs involve the suppliers paying fixed fees to retailers.…”

Vertical Contracts and Mandatory Universal Distribution

“…The literature on slotting allowances and other vertical restrictions (Shaffer 2005, and Innes and Hamilton 2006, 2009 deals with a very different policy question but uses models with similar vertical structures. Slotting allowances are fees that grocery chains receive from manufacturers to provide shelf-space for their goods.…”