Slotting allowances are fees paid by manufacturers to get access to retailers' shelf space. Both in the USA and Europe, the use of slotting allowances has attracted attention in the general press as well as among policy makers and economists. One school of thought claims that slotting allowances are efficiency enhancing, while another school of thought maintains that slotting allowances are used in an anti-competitive manner. In this paper, we argue that this controversy is partially caused by inadequate assumptions of how the retail market is structured and organized. Using a formal model, we show that there are good reasons to expect anti-competitive effects of slotting allowances. We further point out that competition authorities tend to use an unsatisfactory basis for comparison when analyzing welfare consequences of slotting allowances.It sounds like the authors are arguing that slotting is anti-competitive. The blog entry summarizes briefly the arguments generally advanced by both sides, but I was pleased to see their conclusion, because it adopted a view that I've long held, that paying slotting fees is probably, in most cases, a violation of the Robinson-Patman Act, because it results in discriminatory pricing (and/or discriminatory allowances):
Price Discrimination - While substantial attention has been devoted to assessing the antitrust implications of slotting fees, commentators and the government often focus on the relatively simple antitrust issues associated with slotting – i.e., whether the fees are a result of collusion or impede entry of new products – but fail to grapple with a much more complicated issue: whether slotting fees give rise to price discrimination concerns under the Robinson Patman Act. Not all retailers and wholesalers charge slotting fees. Price discrimination concerns arise when a vendor pays slotting fees to one retailer, but not the retailer’s competitor. If the vendor does not reduce its product pricing to the retailer’s competitor by the amount of the slotting fee given to the retailer, paying the retailer’s slotting fee may violate the Robinson-Patman Act. For this reason, we believe that, in assessing the legality of slotting fees under the antitrust laws, the fees must be considered along with other discounts and allowances vendors give retailers and wholesalers.I know of few manufacturers who make slotting payments on anything resembling a proportional basis. OK, let's be honest: Nobody pays them on a proportional basis. Now, some might compensate by offering larger payments of other types to those retailers who get little or no slotting money, but I'm pretty sure even this seldom happens. Also, since slotting payments are by definition (per FASB 01-9) price reductions rather than marketing allowances, a regulator might not see a payment that is contingent on performance as offsetting a straight pricing action.
When I've posted recently on the possibility of increased regulation of trade promotion in the next administration, I probably should have mentioned slotting fees -- it's one of the few areas of channel marketing that the FTC has paid attention to in recent years, and one that gets some consumer and media attention, and might therefore be an area for action.
