A Game Theoretical Analysis of Slotting Allowance

Abstract

In this paper I use a game theoretical model to analyze the economic effects for the situation in which the retailers ask their upstream suppliers to pay the slotting allowances (also known as the shelf space rental fees) to obtain retailer patronage. The retailers are modeled as the Stackelberg leaders, and the upstream suppliers fpllowers, to characterize the current market situation in Taiwan. It is shown that under certain assumptions the slotting allowances should do no damage to the consumers' welfare and social welfare. These findings provide policy implications for the Fair Trade Commission of Taiwan.