Demand Screening with Slotting Allowances and Failure Fees

Cheryl S DeVuyst

doi:10.2202/1542-0485.1076

Article

Demand Screening with Slotting Allowances and Failure Fees

Cheryl S DeVuyst

Published/Copyright: June 2, 2005

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From the journal Journal of Agricultural & Food Industrial Organization Volume 3 Issue 2

In the presence of scarce shelf space, retail grocers face the proliferation of new products and high failure rates. Accurately predicting the demand for a new product becomes increasingly difficult for retailers as the number of product offerings increases. This study explores slotting allowances and failure fees as mechanisms to screen new products' demand distributions. Mechanism design framework and two moments of the product demand distribution are utilized to eliminate mean-variance dominated products and separate non-dominated products by their demand distributions. Model results suggest that accurately designed menus of contracts including retail prices, slotting allowances, failure fees (or success rebates) and sales targets can separate products by their demand distributions and alleviate asymmetric information problems.

Keywords: asymmetric information; adverse selection; slotting allowances; screening; new product introductions

Published Online: 2005-6-2

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Articles in the same Issue

https://doi.org/10.2202/1542-0485.1076

Keywords for this article

asymmetric information; adverse selection; slotting allowances; screening; new product introductions