Slotting allowances and buy-back clauses

Abstract

In this paper we investigate some of the most frequent arguments for the use of slotting allowances. It has been claimed that slotting allowances can be profitability used to increase retail profits at the cost of increasing consumer prices. A second argument is that slotting allowances can be used by producers of new product to signal the demand potential of their products. We find that in a perfect information setting slotting allowances will never arise in equilibrium. Moreover, we question whether slotting allowances can serve as a signalling device. We argue that buy-back clauses are far better instruments to signal profitability of new product launches in the grocery sector. Implications for innovation and competition policy are discussed.