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Bundle-Size Pricing as an Approximation to Mixed Bundling

Author

Listed:
  • Chenghuan Sean Chu
  • Phillip Leslie
  • Alan Sorensen

Abstract

Multiproduct firms can set separate prices for all possible bundled combinations of its products "mixed bundling"). However, this is impractical for firms with more than a few products, because the number of prices increases exponentially with the number of products. We find that simple pricing strategies are often nearly optimal. Specifically, we show that bundle-size pricing--setting prices that depend only on the size of bundle purchased--tends to be more profitable than offering the individual products priced separately and tends to closely approximate the profits from mixed bundling. (JEL D24, D42, L11, L13, L25)

Suggested Citation

  • Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2011. "Bundle-Size Pricing as an Approximation to Mixed Bundling," American Economic Review, American Economic Association, vol. 101(1), pages 263-303, February.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:1:p:263-303
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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