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Slide 1 ANTITRUST ANALYSIS OF Joshua D. Wright FTC/DOJ Joint Hearings on Single Firm Conduct Slide 2 My comments are based upon two forthcoming articles co-authored with Benjamin Klein (available on the website):
Slide 3 Slotting arrangements: per unit time payments made by manufacturers to retailers for shelf space.
Slide 4 Anticompetitive theories do not explain the growth and prevalence of slotting contracts:
Slide 5 Two key economic questions that must be answered with respect to slotting fees are:
Slide 6 Slotting contracts solve incentive incompatibility involving retailer undersupply of promotion when there are little or no inter-retailer competitive effects from the supply of promotional shelf space Slide 7 A Promotional Services Theory of Slotting Contracts Retailers supply less than the joint profit-maximizing level of promotion because they do not consider the manufacturer profit margin on incremental sales For many products
Slide 8 For Price Competition: inter-retailer competitive effects offset the relatively small retail margin to approximately produce the optimum amount of retail price competition Slide 9 because there are inter-retailer competitive effects in addition to inter-brand competitive effects Slide 10 However, because promotional shelf space creates “impulse sales”, there are small inter-retailer demand effects Slide 11 Slide 12 The distortion is not present on all forms of non-price competition. If consumers value the non-price service and will switch retailers in response to its supply, e.g., free parking, the joint profit-maximizing quantity will be supplied. Slide 13 In these fairly general circumstances, the manufacturer will want the retailer to provide more promotional shelf space for its products than the retailer would otherwise provide and a separate contract for shelf space will be necessary. But the fact that manufacturers compensate retailers for promotional shelf space implies that retailers have the incentive to cheat on the implicit understanding by not supplying the contracted for level of promotion. Slide 13 There are many pro-competitive rationales for exclusive shelf space arrangements, such as those observed in Gruma, Conwood, McCormick, and Harmar.
Slide 14 Category management contracts an alternative solution to the promotional shelf space contracting problem when consumers’ demand for a particular brand is high.
Slide 15
Slide 16 Lessons for Exclusive Dealing Analysis
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