Working Paper No. 06-38:
The Antitrust Law and Economics of Category Management
Benjamin Klein, Joshua Wright
Date Posted: 2006
Category management is a business technique by which a retailer designates a manufacturer as a product category manager or captain and gives the designated manufacturer authority concerning retail shelf space allocation, promotion, product assortment and inventory decisions. In return, the retailer receives a lower wholesale price or a per unit time payment. Increasing antitrust scrutiny has been applied to category manager arrangements, exemplified by the Sixth Circuit's recent decision in Conwood Co. v. United States Tobacco. Co. This paper analyzes the law and economics of such arrangements. Manufacturer payments for retail distribution (shelf space) are shown to be an element of the normal competitive process. Why this competition for retail distribution may also result in a shift in control over the shelf space allocation decision from the retailer to a manufacturer is then analyzed. Finally, the paper examines current antitrust policy with regard to category management. Category management is shown to be a pro-competitive aspect of retailing arrangements that benefits consumers.