IDEAS home Printed from https://ideas.repec.org/a/eee/reecon/v70y2016i4p623-637.html
   My bibliography  Save this article

A welfare evaluation of tying strategies

Author

Listed:
  • Gayer, Amit
  • Shy, Oz

Abstract

We compare monopoly profit, consumer surplus, and total welfare associated with three commonly used tying strategies: no tying, pure tying, and mixed tying. Whereas the previous literature focused mainly on profit comparisons, this paper evaluates the relationship between component production costs and total welfare. We identify several market failures where the seller does not adopt the welfare-maximizing tying strategy. Finally, we explore how consumer exclusion rates (uncaptured market) are affected by tying strategy and some implications for unbundling regulation.

Suggested Citation

  • Gayer, Amit & Shy, Oz, 2016. "A welfare evaluation of tying strategies," Research in Economics, Elsevier, vol. 70(4), pages 623-637.
    • Handle: RePEc:eee:reecon:v:70:y:2016:i:4:p:623-637
    DOI: 10.1016/j.rie.2016.08.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1090944316301624
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.rie.2016.08.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Seidmann, Daniel J, 1991. "Bundling as a Facilitating Device: A Reinterpretation of Leverage Theory," Economica, London School of Economics and Political Science, vol. 58(232), pages 491-499, November.
    2. Schmalensee, Richard, 1982. "Commodity Bundling by Single-Product Monopolies," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 67-71, April.
    3. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    4. Hemant K. Bhargava, 2012. "Retailer-Driven Product Bundling in a Distribution Channel," Marketing Science, INFORMS, vol. 31(6), pages 1014-1021, November.
    5. Horn, Henrick & Shy, Oz, 1996. "Bundling and International Market Segmentation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 51-69, February.
    6. Palfrey, Thomas R, 1983. "Bundling Decisions by a Multiproduct Monopolist with Incomplete Information," Econometrica, Econometric Society, vol. 51(2), pages 463-483, March.
    7. Dansby, Robert E & Conrad, Cecilia, 1984. "Commodity Bundling," American Economic Review, American Economic Association, vol. 74(2), pages 377-381, May.
    8. Hanming Fang & Peter Norman, 2006. "To bundle or not to bundle," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 946-963, December.
    9. Shy,Oz, 2008. "How to Price," Cambridge Books, Cambridge University Press, number 9780521715645.
    10. Martin, Stephen, 1999. "Strategic and welfare implications of bundling," Economics Letters, Elsevier, vol. 62(3), pages 371-376, March.
    11. Xianjun Geng & Maxwell B. Stinchcombe & Andrew B. Whinston, 2005. "Bundling Information Goods of Decreasing Value," Management Science, INFORMS, vol. 51(4), pages 662-667, April.
    12. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    13. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 159-187.
    14. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages 211-230, January.
    15. Salinger, Michael A, 1995. "A Graphical Analysis of Bundling," The Journal of Business, University of Chicago Press, vol. 68(1), pages 85-98, January.
    16. Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-298, March.
    17. Hanming Fang & Peter Norman, 2006. "To bundle or not to bundle," RAND Journal of Economics, The RAND Corporation, vol. 37(4), pages 946-963, December.
    18. Lewbel, Arthur, 1985. "Bundling of substitutes or complements," International Journal of Industrial Organization, Elsevier, vol. 3(1), pages 101-107, March.
    19. Frank Mathewson & Ralph A. Winter, 1997. "Tying as a Response to Demand Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 566-583, Autumn.
    20. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
    21. Girju, Marina & Prasad, Ashutosh & Ratchford, Brian T., 2013. "Pure Components versus Pure Bundling in a Marketing Channel," Journal of Retailing, Elsevier, vol. 89(4), pages 423-437.
    22. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
    23. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 371-383.
    24. 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.
    25. Yannis Bakos & Erik Brynjolfsson, 2000. "Bundling and Competition on the Internet," Marketing Science, INFORMS, vol. 19(1), pages 63-82, May.
    26. Peitz, Martin, 2008. "Bundling may blockade entry," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 41-58, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Amit Gayer & Avishay Aiche & Eli Gimmon, 2022. "Online sequential bundling: profit analysis and practice," Electronic Commerce Research, Springer, vol. 22(4), pages 1351-1375, December.
    2. Kim, Hwang & Rao, Vithala R., 2023. "A comparison of online recommendation methods: Simultaneous versus sequential approaches," Journal of Retailing, Elsevier, vol. 99(2), pages 210-227.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Akifumi Ishihara & Noriyuki Yanagawa, 2013. "Dark Sides of Patent Pools with Compulsory Independent Licensing," CARF F-Series CARF-F-318, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    2. Sang‐Hyun Kim & Jong‐Hee Hahn, 2022. "On the profitability of interfirm bundling in oligopolies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 657-673, August.
    3. Andrea Mantovani, 2013. "The Strategic Effect of Bundling: A New Perspective," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(1), pages 25-43, February.
    4. Jidong Zhou, 2017. "Competitive Bundling," Econometrica, Econometric Society, vol. 85, pages 145-172, January.
    5. Zhou, Jidong, 2021. "Mixed bundling in oligopoly markets," Journal of Economic Theory, Elsevier, vol. 194(C).
    6. Angelika Endres-Fröhlich & Joachim Heinzel, 2022. "The Impact of Product Qualities on Downstream Bundling in a Distribution Channel," Working Papers Dissertations 90, Paderborn University, Faculty of Business Administration and Economics.
    7. Amit Gayer & Avishay Aiche & Eli Gimmon, 2022. "Online sequential bundling: profit analysis and practice," Electronic Commerce Research, Springer, vol. 22(4), pages 1351-1375, December.
    8. Sheikhzadeh, Mehdi & Elahi, Ehsan, 2013. "Product bundling: Impacts of product heterogeneity and risk considerations," International Journal of Production Economics, Elsevier, vol. 144(1), pages 209-222.
    9. 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.
    10. Rustam Ibragimov & Johan Walden, 2010. "Optimal Bundling Strategies Under Heavy-Tailed Valuations," Management Science, INFORMS, vol. 56(11), pages 1963-1976, November.
    11. Yongmin Chen & Michael H. Riordan, 2013. "Profitability Of Product Bundling," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 35-57, February.
    12. Qingning Cao & Xianjun Geng & Jun Zhang, 2022. "Impact of channel structure on a manufacturer's bundling decision with an application to digital goods," Production and Operations Management, Production and Operations Management Society, vol. 31(4), pages 1679-1697, April.
    13. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    14. Shuai, Jie & Yang, Huanxing & Zhang, Lan, 2022. "Dominant firm and competitive bundling in oligopoly markets," Games and Economic Behavior, Elsevier, vol. 132(C), pages 421-447.
    15. Tarek Abdallah, 2019. "On the Benefit (Or Cost) of Large‐Scale Bundling," Production and Operations Management, Production and Operations Management Society, vol. 28(4), pages 955-969, April.
    16. Joao Macieira & Pedro Pereira & Joao Vareda, 2013. "Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play," Working Papers 13-15, NET Institute.
    17. Rustam Ibragimov, 2004. "Shifting paradigms: on the robustness of economic models to heavy-tailedness assumptions," Econometric Society 2004 Latin American Meetings 105, Econometric Society.
    18. Baranes, Edmond & Podesta, Marion & Poudou, Jean-Christophe, 2016. "Mixed bundling may hinder collusion," Research in Economics, Elsevier, vol. 70(4), pages 638-658.
    19. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    20. Kopczewski, Tomasz & Sobolewski, Maciej & Miernik, Ireneusz, 2018. "Bundling or unbundling? Integrated simulation model of optimal pricing strategies," International Journal of Production Economics, Elsevier, vol. 204(C), pages 328-345.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reecon:v:70:y:2016:i:4:p:623-637. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622941 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.