Strategic and welfare implications of product bundling under Bertrand competition
AbstractThis paper examines how Bertrand competition affects the welfare implications of bundling by a multi-product firm, which is a monopoly over one good and faces a single-product competitor in a second good. We find that the equilibrium bundle price is lower than the sum of the prices of the two goods sold separately. We also show that bundling benefits both firms but hurts consumers, despite that social welfare increases. Under price competition, bundling thus creates a conflict between the maximization of social welfare and consumer surplus.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 32 (2012)
Issue (Month): 4 ()
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commodity bundling; multiproduct firm; social welfare; Bertrand price competition;
Find related papers by JEL classification:
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- D4 - Microeconomics - - Market Structure and Pricing
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- Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
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