Consumer Shopping Costs as a Cause of Slotting Fees: A Rent-Shifting Mechanism

Stephane Caprice, Vanessa von Schlippenbach
2010 Social Science Research Network  
Analyzing a sequential bargaining framework with one retailer and two suppliers of substitutable goods, we show that slotting fees may emerge as a result of a rent-shifting mechanism when consumer shopping costs are taken into account. If consumers economize on their shopping costs by bundling their purchases, their buying decision depends rather on the price for the whole shopping basket than on individual product prices. This induces complementarities between the goods o¤ered at a retail
more » ... ed at a retail outlet. If the complementarity e¤ect resulting from shopping costs dominates the original substitution e¤ect, the wholesale price negotiated with the ...rst supplier is upward distorted in order to shift rent from the second supplier. As long as the ...rst supplier has only little bargaining power, she compensates the retailer for the upward distorted wholesale price by paying a slotting fee. We also show that banning slotting fees causes perunit price to fall and welfare to increase. JEL-Classi...cation: L22, L42
doi:10.2139/ssrn.1639794 fatcat:64vgtmsgofcu3hgq75423iv22i