A new “slotting-fee-based” contract to coordinate a retailer-dominant newsvendor-product channel with sales effort effects

“Slotting fee” (hereafter “SF”) is an upfront fee a “supplier” is required to pay the retailer in order to have his product sold on the retailer's shelves. It is becoming increasingly common, but also widely reviled. The question we pose is: given that a Stackelberg-dominant retailer of a newsvendor product has to choose a pricing contract with which she transacts with the supplier, how would the supply-chain stakeholders fare when the retailer implements SF instead of another practical pricing contract. We show that, contradicting its negative public image, choosing SF can often provide a better outcome for all the stakeholder-groups. That is, the supplier's and the retailer's profits are higher, the production workers are asked to produce more, and the consumers pay a lower retail price. We also propose a new “composite” contract format that incorporates both the slotting-fee and “buyback” features. This composite format performs even better than the basic SF.