The availability of a new product in a store creates, through word-of-mouth advertising,
an informative spillover that may go beyond the store itself. We show that,
because of this spillover, each retailer is able to extract a slotting fee from the manufacturer
at product introduction. Slotting fees may discourage innovation and in turn
harm consumer surplus and welfare. We further show that the spillover may facilitate
the use of pay-to-stay fees by an incumbent to deter entry. Finally, a manufacturer is
likely to pay lower slotting fees when it can heavily advertize or when it faces larger
KeyWords: Buyer Power, Innovation, Informative Advertising, Slotting Fees.
JEL codes: L13, L42, M37.