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Nash-in-Nash Bargaining with Price-Setting Firms: Contracts, Profits, and the Role of Slotting Fees

Author

Listed:
  • Foros, Øystein

    (Dept. of Business and Management Science, Norwegian School of Economics and Business Administration)

  • Kind, Hans Jarle

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Shaffer, Greg

    (Simon Business School, University of Rochester)

Abstract
This paper uses a Nash-in-Nash bargaining framework to consider why suppliers and retailers sometimes prefer to negotiate over linear contracts rather than over more sophisticated contracts such as two-part tariffs, and why, when they do negotiate over more sophisticated contracts, we often see negative fixed fees (slotting fees). We compare profits under the two forms of contracts and find under weak conditions that when negative fixed fees would arise in the case of two-part tari↵s, at least one side and often both sides will prefer this outcome to the outcome that would arise with linear contracts. In contrast, the opposite holds when positive fixed fees would arise in the case of two-part tariffs. Using linear demands, we demonstrate that retailers always favor negotiating over two-part tariffs when the fixed fees are negative, and prefer linear contracts when the fixed fees are positive. Suppliers generally share these preferences, unless they possess particularly strong bargaining power relative to retailers. Our findings have implications for retailer buyer power and are broadly consistent with stylized facts from the U.S. grocery industry.

Suggested Citation

  • Foros, Øystein & Kind, Hans Jarle & Shaffer, Greg, 2025. "Nash-in-Nash Bargaining with Price-Setting Firms: Contracts, Profits, and the Role of Slotting Fees," Discussion Paper Series in Economics 17/2025, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2025_017
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    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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