New Product Introduction and Slotting Fees*

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