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A more general theory of commodity bundling

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  • Armstrong, Mark

Abstract

This paper discusses the incentive to bundle when consumer valuations are non-additive and/or when products are supplied by separate sellers. Whether integrated or separate, a firm has an incentive to introduce a bundle discount when demand for the bundle is more elastic than the overall demand for products. When separate sellers coordinate on a bundle discount, they can use the discount to relax competition, which can harm welfare.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 2 ()
Pages: 448-472

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:2:p:448-472

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Web page: http://www.elsevier.com/locate/inca/622869

Related research

Keywords: Price discrimination; Bundling; Discrete choice; Oligopoly; Common agency;

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  1. Long, John B, Jr, 1984. "Comments on "Gaussian Demand and Commodity Bundling."," The Journal of Business, University of Chicago Press, vol. 57(1), pages S235-46, January.
  2. Lewbel, Arthur, 1985. "Bundling of substitutes or complements," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 3(1), pages 101-107, March.
  3. Calzolari, Giacomo & Denicolo, Vincenzo, 2009. "Competition with exclusive contracts and market-share discounts," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7613, C.E.P.R. Discussion Papers.
  4. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
  5. Pavlov Gregory, 2011. "Optimal Mechanism for Selling Two Goods," The B.E. Journal of Theoretical Economics, De Gruyter, De Gruyter, vol. 11(1), pages 1-35, February.
  6. 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.
  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. 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.
  9. Claudio Lucarelli & Sean Nicholson & Minjae Song, 2010. "Bundling Among Rivals: A Case of Pharmaceutical Cocktails," NBER Working Papers 16321, National Bureau of Economic Research, Inc.
  10. John Thanassoulis, 2007. "Competitive Mixed Bundling and Consumer Surplus," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 16(2), pages 437-467, 06.
  11. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, Econometric Society, vol. 64(1), pages 51-75, January.
  12. Schmalensee, Richard, 1982. "Commodity Bundling by Single-Product Monopolies," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 25(1), pages 67-71, April.
  13. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
  14. R. Venkatesh & Wagner Kamakura, 2003. "Optimal Bundling and Pricing under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products," The Journal of Business, University of Chicago Press, vol. 76(2), pages 211-232, April.
  15. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, American Economic Association, vol. 97(3), pages 713-744, June.
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Cited by:
  1. Chen, Yongmin & Zhang, Tianle, 2014. "Interpersonal Bundling," MPRA Paper 56165, University Library of Munich, Germany.
  2. Alexei Alexandrov & Özlem Bedre-Defolie, 2013. "The equivalence of bundling and advance sales," ESMT Research Working Papers ESMT-13-11, ESMT European School of Management and Technology.

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