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THE ROLE OF COST IN DETERMINING WHEN FIRMS OFFER BUNDLES -super-*

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  • DAVID S. EVANS
  • MICHAEL A. SALINGER

Abstract

We model competitive bundling and tying, allowing for marginal cost savings from bundling, fixed costs of product offerings, and variation in customer preferences. Pure bundling can arise either because few people demand only one component or because, with high fixed costs, a single product efficiently satisfies customers with diverse tastes. We conclude by analyzing empirically the bundling of pain relievers with decongestants. The discount for the bundled product is large. We argue that our model provides a simpler, more compelling explanation for the size of the discount than the demand-centered approach to bundling by a monopolist. Copyright 2008 The Author.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 56 (2008)
Issue (Month): 1 (03)
Pages: 143-168

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Handle: RePEc:bla:jindec:v:56:y:2008:i:1:p:143-168

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Cited by:
  1. David S. Evans & Michael Salinger, 2004. "An Empirical Analysis of Bundling and Tying: Over-the-Counter Pain Relief and Cold Medicines," CESifo Working Paper Series 1297, CESifo Group Munich.
  2. David S. Evans & Andrei Hagiu & Richard Schmalensee, 2004. "A Survey of the Economic Role of Software Platforms in Computer-Based Industries," CESifo Working Paper Series 1314, CESifo Group Munich.
  3. David S. Evans & Michael Salinger, 2005. "Curing Sinus Headaches and Tying Law: An Empirical Analysis of Bundling Decongestants and Pain Relievers," CESifo Working Paper Series 1519, CESifo Group Munich.

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