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 by an incumbent or an entrant and in turn
harm consumer surplus and welfare. We further show that a manufacturer is likely to pay lower
slotting fees when it can heavily advertize or when it faces larger buyers. Finally, we prove
that our results hold when introducing retail competition.
KeyWords: Buyer Power, Innovation, Informative Advertising, Slotting Fees.
JEL codes: L13, L42, M37.