Slotting Allowances and Retail Product Variety under Oligopoly
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Slotting fees are fixed charges paid by food manufacturers to retailers for access to the retail market. The role of the practice and its effects on market efficiency are highly controversial. To date, the literature has focused on the effect of the practice on retail prices; however, slotting allowances also have the potential to alter the range of products available to consumers. Our analysis reveals that the strategic use of slotting allowances by oligopoly firms leads to a superior allocation of product variety among retailers. Indeed, absent price effects, we show that slotting allowances lead to the socially optimal provision of product variety.