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Competitive Mixed Bundling and Consumer Surplus

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  • John Thanassoulis

Abstract

Mixed bundling in imperfectly competitive industries causes some prices to rise and others to fall. This paper studies under what conditions mixed bundling works for or against the consumer interest. We find that if buyers incur firm‐specific costs or have shop‐specific tastes then competitive mixed bundling lowers consumer surplus overall and raises profits—the same is true of competitive volume discounts. Competition without these volume discounts causes all prices to be kept low as larger customers are targeted; with volume discounts the prices for heavy users drop, but more is extracted from small users. The consumer surplus result is reversed if the differentiation between components as opposed to firms is key.

Suggested Citation

  • John Thanassoulis, 2007. "Competitive Mixed Bundling and Consumer Surplus," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 437-467, June.
    • Handle: RePEc:bla:jemstr:v:16:y:2007:i:2:p:437-467
    DOI: 10.1111/j.1530-9134.2007.00145.x
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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