Many grocery stores charge manufacturers a slotting fee: a one-time fee to place a given good on the shelf. Although stores sometimes claim that these fees are to cover their transaction costs of relabeling shelves and updating their computer files, the fees are too large—$50,000 or more for that to be the only reason. Suppose that both the manufacturer and the grocery stores were monopolies.
What is the effect of a slotting fee on the manufacturer’s wholesale price, the final price in the store, the number of units sold, and the two firms’ profits?