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Slotting allowances are upfront payments that manufacturers make to retailers to obtain shelf space. They are widespread in the grocery industry and are of concern to antitrust policy makers because of their potentially adverse effect on retail prices. A popular view is that these payments arise because retailers have more products from which to choose than they can profitably carry given the availability of shelf space. According to this view, slotting allowances are caused by the scarcity of shelf space. In this paper, the authors show that the causality can also go the other way: the scarcity of shelf space may in part be due to the emergence of slotting allowances. This has policy implications.
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