Effect of Slotting Allowances on Pricing and Shelf Space Allocation in the Supply Chain with Different Channel Power Structures

Abstract

Whether the supplier offering slotting allowances to the retailer is reasonable has always been the focus of attention. The paper investigates the effects of slotting allowances on the two-echelon supply chain consisting of a supplier and a retailer in which the demand facing the retailer is both price and shelf-space sensitive. The results show that the slotting allowances have different effects on the supply chain with different power structures. In the supplier Stackelberg supply chain, the retail price and shelf space are not affected by the slotting allowances, hence the product sales are also not affected. In the retailer Stackelberg supply chain, the retailer will reduce the retail price and allocate more shelf space as the slotting allowance rate increases. The numerical simulation result shows that in the retailer Stackelberg supply chain, the profits of the retailer and the total supply chain increase with the slotting allowance rate and the profit of the supplier increases only when the slotting allowance rate is below a certain threshold. Therefore it does good to the retailer Stackelberg supply chain when proper slotting allowances are paid by the supplier to the retailer.