New Product Introduction and Slotting Fees*

Abstract

The availability of a new product in a store creates an informative spillover that extends past the store itself through word‐of‐mouth advertising. Because of this spillover, each retailer is able to extract a slotting fee from the manufacturer at product introduction. Slotting fees may discourage innovation by the manufacturer and, in turn, reduce consumer surplus and social welfare. A manufacturer is more likely to pay lower slotting fees when it can advertise more heavily, or when it faces a larger buyer. These results are robust to variations in retail competition, firms’ discount factors, and the identity of the innovating firm.

Vertical contracting between a vertically integrated firm and a downstream rival

“…The fact that an upstream supplier may prefer to trade through linear contracts has also been shown byMilliou and Pavlou (2013) in a context where the supplier has all bargaining power and undertakes R&D investments.16 See, e.g.,Shaffer (1991),Marx and Shaffer (2007),Marx and Shaffer (2010),Yehezkel (2014) andChambolle and Christin (2021).…”