Slotting Allowances and Fees: Schools of thought and the Views of Practicing Managers

Abstract

Slotting allowances and fees have attracted considerable attention and controversy since their introduction in the mid-1980s. Currently, two schools of thought dominate the debate on these fees. One considers them a tool for improving distribution efficiency, whereas the other proposes that the fees operate as a mechanism for enhancing market power and damaging competition. Managers and public policymakers are uncertain as to the effects of slotting fees and the appropriate strategy to adopt. The current study attempts to inform the debate surrounding slotting fees and provide guidance to managers and policymakers. The authors summarize the arguments of the two schools and investigate the views of managers toward them through a large-scale survey of manufacturer, wholesaler, and retailer grocery institutions. Though exploratory, the findings suggest that slotting fees shift the risk of new product introductions and help apportion the demand and supply of new products. The authors find that slotting fees are also associated with the exercise of retailer market power, are applied in a discriminatory fashion, and lead to higher retail prices. The authors encourage further research that examines slotting fees and their effects and indicate prospective directions.