Slotting Allowances and Price-Cost Margins: A Note

It has become common practice for retail grocers to charge grocery manufacturers a slotting allowance for placing products on the retail shelf. Manufacturers view the allowance as anti-competitive. Retailers view it as compensation for the risks associated with stocking new products. The largely theoretical literature on the subject is consistent with both views. This article proposes an empirical model to test the effect of slotting allowances on performance, and discusses if and how the model can be tied to the qualitative predictions of existing theoretical literature.