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Compatibility and bundling of stand and No stand-alone use complements

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  • Vamosiu, Adriana

Abstract

This study analyzes the profitability of compatibility and bundling for a duopolist introducing a new, monopoly complementary product of no individual use. In a market where there are both new consumers and legacies, I show the two-product seller's optimal product bundling strategy is compatibility between the complement and the single-product competitor's platform. Their optimal price bundling strategy is to offer the two products a la carte. If compatibility is not possible due to high costs, the two-product seller's profit maximizing strategy is dependent on (i) the relative size of its legacy base to the single-product seller's, (ii) the degree of differentiation between the competing products and (ii) the consumer valuation for the new product relative to the existing one.

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  • Vamosiu, Adriana, 2018. "Compatibility and bundling of stand and No stand-alone use complements," International Journal of Production Economics, Elsevier, vol. 201(C), pages 62-74.
    • Handle: RePEc:eee:proeco:v:201:y:2018:i:c:p:62-74
    DOI: 10.1016/j.ijpe.2017.12.029
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    Cited by:

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    2. Ritwik Raj & Mark H. Karwan & Chase Murray & Lei Sun, 2022. "Itemized pricing in B2B bundles with diminishing reservation prices and loss averse customers," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(4), pages 375-392, August.
    3. Angelika Endres-Fröhlich & Burkhard Hehenkamp & Joachim Heinzel, 2022. "The Impact of Product Differentiation on Retail Bundling in a Vertical Market," Working Papers Dissertations 91, Paderborn University, Faculty of Business Administration and Economics.
    4. Lin, Xiaogang & Zhou, Yong-Wu & Xie, Wei & Zhong, Yuanguang & Cao, Bin, 2020. "Pricing and Product-bundling Strategies for E-commerce Platforms with Competition," European Journal of Operational Research, Elsevier, vol. 283(3), pages 1026-1039.

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    More about this item

    Keywords

    Compatibility; Price bundling; Product bundling; Competition; Legacy consumers;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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