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

28 Pages Posted: 15 Jul 2010

See all articles by Stephane Caprice

Stephane Caprice

University of Toulouse 1 - Toulouse School of Economics (TSE)

Vanessa von Schlippenbach

German Institute for Economic Research (DIW Berlin)

Date Written: June 2010

Abstract

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 offered at a retail outlet. If the complementarity effect resulting from shopping costs dominates the original substitution effect, the wholesale price negotiated with the first supplier is upward distorted in order to shift rent from the second supplier. As long as the first 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 per- unit price to fall and welfare to increase.

Keywords: Shopping costs, rent-shifting, slotting fees

JEL Classification: L22, L42

Suggested Citation

Caprice, Stephane and Schlippenbach, Vanessa von, Consumer Shopping Costs as a Cause of Slotting Fees: A Rent-Shifting Mechanism (June 2010). DIW Berlin Discussion Paper No. 1012, Available at SSRN: https://ssrn.com/abstract=1639794 or http://dx.doi.org/10.2139/ssrn.1639794

Stephane Caprice (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Vanessa von Schlippenbach

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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