Slotting allowances as real options: An alternative explanation

Timothy Richards, Paul M. Patterson

Research output: Contribution to journalArticle

12 Scopus citations

Abstract

This article offers an alternative explanation for slotting allowances using contingent claims analysis, or real option pricing. Slotting allowances arise because retailers hold call options on their shelf space while suppliers must buy these options to introduce a new product. A simulated model of new-product introduction shows that stocking a new product contains a significant, imbedded real option component. We also show that advertising and promotional support can reduce the real option value.

Original languageEnglish (US)
Pages (from-to)675-696
Number of pages22
JournalJournal of Business
Volume77
Issue number4
DOIs
StatePublished - Oct 1 2004

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ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

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