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Bundling Sequentially Released Durable Goods

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  • Luís Cabral
  • Gabriel Natividad

Abstract

Suppose two durables are sequentially released and suppose that consumer valuations of these goods are positively correlated. By the time the second good is released, high‐valuation buyers are out of the market for the first good. Therefore, a bundle can be targeted at the low‐valuation consumers without violating the high‐valuation consumers' incentive compatibility constraint. We test the model's predictions on data from retail DVD sales in the 2000's. Consistent with theory, our estimates suggest that mixed bundling increases revenues, especially when the bundle components are similar (which in turn suggests positive correlation of valuations).

Suggested Citation

  • Luís Cabral & Gabriel Natividad, 2022. "Bundling Sequentially Released Durable Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 70(2), pages 347-370, June.
    • Handle: RePEc:bla:jindec:v:70:y:2022:i:2:p:347-370
    DOI: 10.1111/joie.12290
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    References listed on IDEAS

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    1. Julie H. Mortimer, 2008. "Vertical Contracts in the Video Rental Industry -super-1," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(1), pages 165-199.
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    3. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    4. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-685, April.
    5. Katherine Ho & Justin Ho & Julie Holland Mortimer, 2012. "The Use of Full-Line Forcing Contracts in the Video Rental Industry," American Economic Review, American Economic Association, vol. 102(2), pages 686-719, April.
    6. Timothy Derdenger & Vineet Kumar, 2013. "The Dynamic Effects of Bundling as a Product Strategy," Marketing Science, INFORMS, vol. 32(6), pages 827-859, November.
    7. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June.
    8. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(3), pages 475-498.
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