Scandinavian Working Papers in Economics
Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics
No 17/2025: 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
Hans Jarle Kind: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
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
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
Language: English
53 pages, August 17, 2025
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