Author(s)
Source
Antitrust Law Journal Vol. 74, No. 2, pp. 439-473, 2007
Summary
This paper looks at how contracts for retail shelf space affect consumers.
Policy Relevance
Competition law should treat “slotting contracts” as a form of competition that ordinarily benefits consumers.
Main Points
- Product manufacturers often pay retailers to display their products on the best shelf space at eye level or at the end of aisles. These are called “slotting contracts.”
- Some observers argue that producers or retailers use slotting contracts to harm competition by forcing rivals to buy more shelf space. These theories make little sense:
- Slotting contracts rarely run long enough to harm competition.
- Slotting contracts have not increased profits for retailers.
- Some small retailers use them, and some large retailers like Walmart do not.
- Others argue that slotting contracts are explained by the increase in the number of products, which raise supermarket costs. But this presents a puzzle, because retailers could also pass higher costs of larger stores on to consumers by charging higher prices.
- Previous empirical studies of slotting contracts support the view that banning slotting contracts would mean that consumers would pay higher prices.
- It makes sense for manufacturers to pay retailers for the best shelf space, because the manufacturer gains more than the retailer if a consumer switches to his brand.
- Getting paid by manufacturers for shelf space should let allow retailers to charge consumers lower prices overall.
- Data from grocery stores run by the Department of Defense shows that a ban on slotting contracts in 2002:
- Increased sales somewhat for products that had previously not been covered by slotting contracts, and decreased sales of slotted products.
- There is no evidence that the slotting ban decreased prices, increased output, or increased product variety.
- The effect of slotting contracts seems to be to shift sales from one brand to another, with little effect on prices, competition, or output.