Platform retailing with slotting allowance and revenue sharing

This paper investigates a type of platform retailing, where the retailer builds up large facilities, inside which a supplier (manufacturer) rents a mini-store and sells goods directly. The retailer demands a slotting allowance and a portion of the sales revenue from the supplier; however, this fee structure may cause a channel conflict and supplier exclusion. To understand these phenomena, we build a two-supplier-one-retailer Stackelberg model with the retailer acting as the leader and the suppliers acting as the followers. We solve the model analytically and numerically, assuming competitive and non-competitive suppliers, identical and nonidentical slotting allowance, and possibly different revenue-sharing rates for the two suppliers. It is found that supplier exclusion may happen if the slotting allowance is identical across the suppliers, whereby the market size difference and product substitution are the underlying driving forces. We also provide rationales for the existence of a slotting fee.