One-stop shopping as a cause of slotting fees: A rent-shifting mechanism

Posted by D. Daniel Sokol

Stephane Caprice (Toulouse School of Economics) and Vanessa von Schlippenbach (DIW Berlin and Dusseldorf Institute for Competition Economics) discuss One-stop shopping as a cause of slotting fees: A rent-shifting mechanism

ABSTRACT: Consumers increasingly prefer to bundle their purchases into a single shopping trip, inducing complementaries between initially independent or substitutable goods. Taking this one-stop shopping behavior into account, we show that slotting fees may emerge as a result of a rent-shifting mechanism in a three-party negotiation framework, where a monopolistic retailer negotiates sequentially with two suppliers about two-part tariff contracts. If the goods are initially independent or sufficiently differentiated, the wholesale price negotiated with the first supplier is upward distorted. This allows the retailer and the first supplier to extract rent from the second supplier. To compensate the retailer for the higher wholesale price, the first supplier pays a slotting fee as long as its bargaining power vis-à-vis the retailer is not too large.