Slotting Allowances and Scarce Shelf Space

Slotting allowances are lump-sum payments that manufacturers make to retailers for shelf space. They have become increasingly widespread in recent years, particularly in the grocery industry. A popular view is that these payments arise because there are more products to choose from than can be profitably carried given the availability of shelf space. Under this view, slotting allowances arise because of the scarcity of shelf space. In this paper, we show that the causality can also go the other way; the scarcity of shelf space may in part be due to slotting allowances. This has policy implications. Because fewer products can be carried when shelf space is scarce, it follows that slotting allowances may be anticompetitive even when their effect on retail prices is ambiguous. JEL Classification Codes: D43, L13, L14, L42 ∗We thank seminar participants at Texas A&M for helpful comments. Marx can be reached at the Fuqua School of Business, Duke University, Durham, NC 27708, or at [email protected]. Shaffer can be reached at the Simon School of Business, University of Rochester, Rochester, NY 14627, or at [email protected].