Pick Me: Slotting Product

“Some have argued that slotting allowances – and a variant known as pay-to-stay fees, paid by manufacturers to keep existing products on retailers’ shelves – harm consumers by, among other things, excluding certain manufacturers and thereby impairing competition that otherwise would take place. Defenders of slotting allowances have asserted that, among other things, they cover the cost of introducing new products to the marketplace and thereby tend to foster entry and innovation”. (ftc.gov 2001) While the Department of Justice concludes that the practice of slotting allowance is not an antitrust issue there is a possibility that there may be issues in the future with anticompetitive exclusion. Slotting allowance is a practice used by manufacturers and retailer to stock certain products on the shelves. It was most prevalent in supermarkets but spread to other store i.e. electronic stores and computer stores. For example, Microsoft pays a fee to have an end cap (spot at the end of an aisle) to display their product only. Some feel that it is an exclusivity practice that leaves out smaller businesses that cannot compete with the fees required by retailers. The process was for manufactures to introduce new product to customers. But it is now a wide spread practice to charge a fee to keep their mature (older) products on the shelf. The practice allows for retailers to build their market power. Pros and cons of slotting allowances: 1) Pros a) It helps to improve distribution efficiency b) Signals the quality of new product c) Retailers are able to screen the product for their stock d) Better use of limited space e) Increase the number of new product 2) Cons f) Implementation of market power by larger retailers g) Remove the spirit of competition h) Creates higher prices