The Strategic Effect of Bundling: A New Perspective

The Strategic Effect of Bundling: A New Perspective This paper investigates the strategic effect of the bundling strategy that is adopted by a multi-product firm that produces two complementary goods and faces one single-product rival in each market. I consider both the Cournot and Bertrand cases. When firms compete in quantities, bundling is completely ineffective. Under price competition, selling as a package is profitable when market competition is particularly tough. In such circumstances, the multi-product firm resorts to bundling to dampen the negative impact of low brand differentiation and/or scarce product complementarity. However, overall prices increase as a result of bundling, and not only consumer surplus, but also total social welfare, shrink. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

The Strategic Effect of Bundling: A New Perspective

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Publisher
Springer Journals
Copyright
Copyright © 2012 by Springer Science+Business Media New York
Subject
Economics / Management Science; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-012-9361-9
Publisher site
See Article on Publisher Site

Abstract

This paper investigates the strategic effect of the bundling strategy that is adopted by a multi-product firm that produces two complementary goods and faces one single-product rival in each market. I consider both the Cournot and Bertrand cases. When firms compete in quantities, bundling is completely ineffective. Under price competition, selling as a package is profitable when market competition is particularly tough. In such circumstances, the multi-product firm resorts to bundling to dampen the negative impact of low brand differentiation and/or scarce product complementarity. However, overall prices increase as a result of bundling, and not only consumer surplus, but also total social welfare, shrink.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Oct 9, 2012

References

  • Why firms may prefer not to price discriminate via mixed bundling
    Anderson, S.; Leruth, L.

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