Slide6_2010Fall_MGMT324

Manufacturers sometimes give retailers one time

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Manufacturers sometimes give retailers one-time payment for product placement on store shelves Slotting Allowances (Raising Rival’s Fixed Costs) What is it? Who has to pay it? Slotting allowances are mostly common to new products Slotting allowances are often waived to 1) Most established products or 2) New offerings with a high likelihood of success Why? To compensate opportunity costs of retailers Consequence Slotting allowances serve as an entry barrier
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Toy market in mid 90s (Raising Rival’s Variable Costs) accounted for about 20% market share Main competitors: Wal-mart and Target Warehouse clubs such as Sams and BJs started selling toys Vs. Warehouse Clubs "Hollywood Hair" Barbie @ $10.95 Barbie packaged with a dress @ $15.99 "Toy Story" version of Mr. Potato Head Must buy Mrs. Potato Head In addition to Mr. Potato head
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Limit Pricing (Signaling Low Cost) Monopolist’s pricing decision D P MC true Q MR P m Q m Why P limit rather than P m ? Potential entrants may know D (thereby MR ) but NOT MC true If a monopolist chooses P limit , it can signal to potential entrants that its marginal cost is low ( MC false < MC true ) P limit MC false
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  • Fall '08
  • Management, Barriers to entry, Mr. Potato, Sangwoo Shin

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