Working Paper No. 06-14:
Slotting Contracts and Consumer Welfare

Author(s):

Joshua Wright

Date Posted: 2006

Availability:
Abstract (below) | Full text (most recent) on SSRN

Abstract:

Slotting contracts involve manufacturer payments for retail shelf space.  Slotting is an increasingly important part of the competitive process in many product markets, and has been the subject of congressional hearings, agency investigations, antitrust litigation, and scholarly debate.  However, very little is known about the competitive consequences of slotting.  This paper uses a unique data set consisting of slotting contracts at military commissaries prior to an exogenously imposed slotting ban to identify the impact of slotting on consumer welfare.  This natural experiment provides a unique opportunity to directly answer the crucial policy counterfactual: would banning slotting contracts increase consumer welfare?  The analysis measures the impact of slotting, at both the product and category levels, on prices, output, and product variety.  I find no evidence that slotting is anticompetitive.  To the contrary, the results suggest that slotting contracts provide substantial net benefits to consumers once one accounts for the unmeasured pass-through of slotting payments.