Manufacturers often pay \"slotting fees,\" payments to retailers to provide thei

Question

Manufacturers often pay "slotting fees," payments to retailers to provide their product prime shelf space. These fess ranges from $25,000 for one item in one store to $3 million for a chain of stores. An example is placing Doritos within a football display before Super Bowl Sunday. (A) In what type of market structure would this behavior likely be prevalent? (B) What does this behavior accomplish for the firm? Relate your answer to the observation that a typical supermarket sticks about 30,000 products. (C) Demonstrate the likely long-term profit in this market structure. (D) Firms have complained to the FTC that this practice is unfair. What is their likely argument? (E) What is an argument on the other side of that presented in (D)?

Explanation / Answer

a. In what type of market structure would this behavior likely be prevalent?

b. What does this behavior accomplish for the firm? Relate your answer to the observation that a typical supermarket stocks about 30,000 products.

c. Which graph correctly demonstrates the likely long-term profits in this market structure?

answer: b

d. Firms have complained to the FTC that this practice is unfair. What is their likely argument?

answer: C. Their argument is likely that the high cost of shelf space is a barrier to entry to them and is therefore unfair competitive practice. The retailer is using its monopoly power over shelf space to extract profit from the supplier.

e. What is an argument on the other side of that presented in d ?

A. An argument on the other side is that firms that produce better products have the profit available to afford to pay the slotting fee and therefore the willingness to pay a high slotting fee is an indication to consumers of a better-quality product.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.