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dc.contributor.authorForos, Øysteinen_US
dc.contributor.authorKind, Hans Jarleen_US
dc.contributor.authorSand, Jan Yngveen_US
dc.description.abstractA manufacturer's incentives to undertake non-contractible investments depend on the profit margin on her sales to the retailer, and slotting allowances can facilitate such incentives by increasing unit wholesale prices. At first glance, it is tempting to conclude that slotting allowances should be particularly prevalent for product categories where the manufacturer's scope for undertaking non-contractible sales effort is relatively large. At odds with this, The Federal Trade Commission, among others, reports that slotting allowances are more commonly used for product categories where the scope for non-contractible effort by the manufacturer is presumably relatively small. To scrutinize this puzzle we set up a simple model with one manufacturer and one retailer, where the manufacturer undertakes noncontractible demand-enhancing investments. The predictions from the model are consistent with the market observations. In particular, we show that even a retailer with complete bargaining power may actually find it optimal to pay the manufacturer a franchising fee if demand is highly sensitive to the manufacturer's non-contractible sales effort. For product categories where the scope for non-contractible effort is relatively small, on the other hand, we are more likely to see slotting allowances.en_US
dc.publisherCenter for Economic Studies and Ifo Institute (CESifo) Munichen_US
dc.relation.ispartofseriesCESifo working paper 2396en_US
dc.subject.keywordSlotting allowancesen_US
dc.subject.keywordnon-contractible sales efforten_US
dc.subject.keywordbargaining poweren_US
dc.titleSlotting allowances and manufacturers' retail sales efforten_US
dc.typeWorking Paperen_US
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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