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Research Note--Competitive Bundling and Counterbundling with Generalist and Specialist Firms

Author

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  • Bikram Ghosh

    (Moore School of Business, University of South Carolina, Columbia, South Carolina 29208)

  • Subramanian Balachander

    (Krannert Graduate School of Management, Purdue University, West Lafayette, Indiana 47907)

Abstract

Bundling, which is the practice of selling two or more products or services in a package, is a pervasive marketing practice and is often used as a strategic competitive tool. However, there has not been enough consideration of competitive bundling situations in which exit of a competitor is not a concern. In this paper, we address this issue by identifying conditions under which strategic competitors may or may not resort to bundling when competitor exit considerations are absent. We study competition between a multiproduct generalist firm and two single-product specialist firms in two product categories, one of which has undifferentiated products and the other has differentiated products. In our model, the specialist firms can form an alliance to bundle their products in competing with the generalist firm. In contrast to the previous literature, we find that concurrent bundling by competitors, if it occurs in equilibrium, is profitable. We also find that when one competitor bundles and the other does not, the bundling firm gains a greater share of customers and makes a higher profit. However, when conditions favor counterbundling by a competitor, such counterbundling helps the competitor retain its customers. Finally, we note that under other market conditions, concurrent bundling by competitors escalates price competition to the extent that retaining customers through bundling is not profitable. In such a case, we show that strategic competitors are better off having asymmetric product lines with one competitor bundling and the other selling unbundled.

Suggested Citation

  • Bikram Ghosh & Subramanian Balachander, 2007. "Research Note--Competitive Bundling and Counterbundling with Generalist and Specialist Firms," Management Science, INFORMS, vol. 53(1), pages 159-168, January.
    • Handle: RePEc:inm:ormnsc:v:53:y:2007:i:1:p:159-168
    DOI: 10.1287/mnsc.1060.0601
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    11. 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.
    12. 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.
    13. Qianbo Yin & Kwei‐Long Huang & Chia‐Wei Kuo & Sean X. Zhou, 2021. "Add‐On Pricing in a Distribution Channel," Production and Operations Management, Production and Operations Management Society, vol. 30(11), pages 4069-4088, November.
    14. 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.
    15. Abel P. Jeuland & Steven M. Shugan, 2008. "Commentary—Managing Channel Profits," Marketing Science, INFORMS, vol. 27(1), pages 49-51, 01-02.
    16. Ashutosh Prasad & R. Venkatesh & Vijay Mahajan, 2017. "Temporal product bundling with myopic and strategic consumers: Manifestations and relative effectiveness," Quantitative Marketing and Economics (QME), Springer, vol. 15(4), pages 341-368, December.
    17. Arcan Nalca, & Tamer Boyaci, & Saibal Ray, 2017. "Consumer taste uncertainty in the context of store brand and national brand competition," ESMT Research Working Papers ESMT-17-01, ESMT European School of Management and Technology.
    18. Jeffrey D. Shulman & Xianjun Geng, 2013. "Add-on Pricing by Asymmetric Firms," Management Science, INFORMS, vol. 59(4), pages 899-917, April.
    19. Yung-Ming Li & Jhih-Hua Jhang-Li & Ting-Kai Hwang & Ping-Wen Chen, 2012. "Analysis of pricing strategies for community-based group buying: The impact of competition and waiting cost," Information Systems Frontiers, Springer, vol. 14(3), pages 633-645, July.
    20. Subramanian Balachander & Bikram Ghosh & Axel Stock, 2010. "Why Bundle Discounts Can Be a Profitable Alternative to Competing on Price Promotions," Marketing Science, INFORMS, vol. 29(4), pages 624-638, 07-08.
    21. Jeffrey D. Shulman & Xianjun Geng, 2019. "Does It Pay to Shroud In-App Purchase Prices?," Information Systems Research, INFORMS, vol. 30(3), pages 856-871, September.
    22. Ashutosh Prasad & R. Venkatesh & Vijay Mahajan, 2010. "Optimal Bundling of Technological Products with Network Externality," Management Science, INFORMS, vol. 56(12), pages 2224-2236, December.
    23. Meyer, Jeffrey & Shankar, Venkatesh, 2016. "Pricing Strategies for Hybrid Bundles: Analytical Model and Insights," Journal of Retailing, Elsevier, vol. 92(2), pages 133-146.

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