Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 7/20: Do slotting allowances reduce product variety?

Teis Lunde Lømo (), Frode Meland () and Håvard Mork Sandvik ()
Additional contact information
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
Håvard Mork Sandvik: Norwegian Competition Authority

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

JEL-codes: L13; L14; L42

37 pages, October 30, 2020

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