Shelf Space Agreement

Therefore, the producer pays the retailer a time fee per unit on the advertising space, which logically corresponds to a lower wholesale price for only the goods sold on the advertising shelf. In our analysis, we assumed, for simplicity, that there was absolutely no inter-retailer effect, so the retailer will only receive in our example about 1/20 of the total profit (the sum of the retailer`s and manufacturer`s profits) from the incremental sales generated by its delivery of S. The manufacturer has much more to gain on the margin if his product has additional advertising shelf space than the distributor should earn. Therefore, in the absence of a separate distributor agreement, retailers will not provide advertising space for the manufacturer`s product, maximizing the common benefits of retailers and producers.

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