Friday, July 16, 2010
Posted by D. Daniel Sokol
Stéphane Caprice (Toulouse School of Economics and GREMAQ-INRA) and Vanessa von Schlippenbach (Deutsches Institut für Wirtschaftsforschung (DIW) Berlin and Humboldt-Universität zu Berlin) discuss Consumer Shopping Costs as a Cause of Slotting Fees: A Rent-Shifting Mechanism.
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 ca! uses per- unit price to fall and welfare to increase.