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Competitive Mixed Bundling of Vertically Differentiated Products

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  • Ahn Illtae

    ()
    (Chung-Ang University)

  • Yoon Kiho

    ()
    (Korea University)

Abstract

We examine mixed bundling in a competitive environment that incorporates vertical product differentiation. We show that, compared to the equilibrium without bundling, (i) prices, profits and social welfare are lower, whereas (ii) consumer surplus is higher in the equilibrium with mixed bundling. In addition, the population of consumers who purchase both products from the same firm is larger in the equilibrium with mixed bundling. These results are largely in line with those obtained in the previous literature on competitive mixed bundling with horizontal differentiation. Further, we conduct a comparative static analysis with respect to changes in quality differentiation parameters. When the quality gap between brands narrows under no bundling and symmetric mixed bundling, prices and profits decrease. When quality differentiation is asymmetric across products, however, complicated effects occur on prices and profits due to strategic interdependence that mixed bundling creates.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 12 (2012)
Issue (Month): 1 (November)
Pages: 1-54

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Handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:n:50

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  1. repec:bla:restud:v:77:y:2010:i:1:p:30-60 is not listed on IDEAS
  2. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, INFORMS, vol. 45(12), pages 1613-1630, December.
  3. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 90(3), pages 475-98, August.
  4. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 40(1), pages 37-54, March.
  5. John Thanassoulis, 2006. "Competitive Mixed Bundling and Consumer Surplus," Economics Series Working Papers 263, University of Oxford, Department of Economics.
  6. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(2), pages 371-83, May.
  7. Joshua S. Gans & Stephen P. King, 2006. "PAYING FOR LOYALTY: PRODUCT BUNDLING IN OLIGOPOLY -super-* ," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 54(1), pages 43-62, 03.
  8. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
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